top of page
Search
  • Writer's pictureVasily Trader

Learn Top 4 Price Action Pattern to Trade Reversals


Hey traders,


In this article, I will share with you the list of 4 best reversal price action patterns.


📍Ascending & Descending Triangles


The main element of the ascending triangle as the REVERSAL pattern is the BEARISH impulse leg, preceding the formation of the pattern.


The pattern consist of 2 main elements:

a horizontal neckline based on the equal highs,

a rising trend line based on the higher lows.


❗️The trigger is a bullish breakout of a neckline of the pattern and candle close above.

📈The position is opened on a retest.

🔴Stop loss is lying at least below the level of the last higher low.

🎯Take profit is the next historical resistance.


——————


📍The main element of the descending triangle formation as the reversal pattern is the BULLISH leg, preceding the formation of the pattern.


The pattern consist of 2 main elements:

a horizontal neckline based on the equal lows,

a falling trend line based on the lower highs.


❗️The trigger is a bearish breakout of a neckline of the pattern and candle close below.

📉The position is opened on a retest.

🔴Stop loss is lying at least above the level of the last lower high.

🎯Take profit is the next historical support.


📍Rising & Falling Wedges


What makes a rising wedge pattern a reversal pattern?

Before the formation of the pattern, the price should form a strong bullish impulse and trade in a bullish trend.


The pattern consists of 2 contracting, rising trend lines based on the higher highs and higher lows.


❗️The trigger is a bearish breakout of a support of the pattern and candle close below.

📉The position is opened on a retest.

🔴Stop loss is lying above the high of the pattern.

🎯Take profit is the closest horizontal support.


——————


What makes a falling wedge pattern a reversal pattern?

Before the formation of the pattern, the price should form a strong bearish impulse and trade in a bearish trend.


The pattern consist of 2 contracting falling trend lines based on the lower lows and lower highs.


❗️The trigger is a bullish breakout of a resistance of the pattern and candle close above.

📈The position is opened on a retest.

🔴Stop loss is lying below the low of the pattern.

🎯Take profit is the closest horizontal resistance.


📍Double Top & Bottom


Double bottom pattern usually forms at the end of a bearish trend.

After a strong bearish impulse, the price retraces, sets a lower high and retests the current low.

Instead of going lower, the price retraces one more time, retests the level of the last lower high and breaks it.


Such a formation confirms a bullish reversal.


❗️The trigger is a bullish breakout of a neckline of the pattern and a candle close above.

📈The position is opened on a retest.

🔴Stop loss is lying below the lows of the pattern.

🎯Take profit is the closest horizontal resistance.


——————


Double top pattern usually forms at the end of a bullish trend.

After a strong bullish impulse, the price retraces, sets a higher low and retests the current high.

Instead of going higher, however, the price retraces one more time, retests the level of the last higher low and breaks it.


Such a formation confirms a bearish reversal.


❗️The trigger is a bearish breakout of a neckline of the pattern and a candle close below.

📈The position is opened on a retest.

🔴Stop loss is lying above the highs of the pattern.

🎯Take profit is the closest horizontal support.


📍Head & Shoulders Pattern & Inverted One


Inverted H&S pattern usually forms at the end of a bearish trend.

The price forms a zig-zag movement with 3 main elements:

the left shoulder with a lower low, the head with a new lower low, and the right shoulder with a higher low.

While the price sets multiple lows, it keeps setting the equal highs, composing a so-called horizontal neckline.


A bullish reversal becomes confirmed once the price breaks and closes above the neckline.


❗️The trigger is a bullish breakout of a neckline of the pattern and a candle close above.

📈The position is opened on a retest.

🔴Stop loss is lying below the lows of the pattern.

🎯Take profit is the closest horizontal resistance.


——————


Head & Shoulders pattern usually forms at the end of a bullish trend.

The price forms a zig-zag movement with 3 main elements:

the left shoulder with a higher high, the head with a new higher high, and the right shoulder with a lower high.

While the price sets multiple highs, it keeps setting the equal lows, composing a so-called horizontal neckline.


A bearish reversal becomes confirmed once the price breaks and closes below the neckline.


❗️The trigger is a bearish breakout of a neckline of the pattern and a candle close below.

📈The position is opened on a retest.

🔴Stop loss is lying above the highs of the pattern.

🎯Take profit is the closest horizontal support. In order to increase the accuracy of trading these patterns, I would recommend trading them only if they are formed on key levels:

Bearish patterns on key resistances and bullish patterns on key supports.


Also, higher is the time frame where you spotted the patterns, higher is the chance that it will give a valid reversal signal.

243 views

Komentarze


bottom of page