Reversal Patterns

When a price pattern shows that the trend is going to change, it's called a reversal pattern. This means that either the buyers or sellers have lost momentum, and the trend will go in a new direction. For example, an uptrend can stop and start to go down if the buyers lose enthusiasm and the sellers take over.

When reversals happen at the top of the market, it's called a distribution pattern, which means people are selling more than buying. When they happen at the bottom of the market, it's called an accumulation pattern, which means people are buying more than selling.

If a pattern takes a long time to form and the price moves a lot within the pattern, then when the price finally breaks out of the pattern, it's expected to move even more.

When a price changes direction after a pause, it's called a reversal pattern. Common examples of reversal patterns include:

• Head and Shoulders shows two small price movements around a larger one.

• Double Tops are a short-term high followed by a failed attempt to go higher.

• Double Bottoms are a short-term low followed by a failed attempt to go lower.

Types of Reversal Patterns

Double Bottom / TopGapsHead and ShouldersTriple Bottom / Top