Reversal Chart Patterns

These patterns are formed after the cfd market has had an extended move up or down and the cfd price reaches a strong resistance or support respectively.

When cfd price reaches such a point it starts to form a pattern. Since these formations are frequently formed it is easy to spot them once you learn how and start using them. There are four types:

• Double Top
• Double Bottoms
• Head and shoulders
• Reverse Head & shoulders

This learn cfd tutorial will only cover double tops and bottoms, for the other 2, read this other tutorial: head & shoulders and reverse head & shoulders

Double Tops

This is a reversal cfd pattern which forms after an extended upward cfds trend. As its name implies, this pattern is made up of two consecutive peaks which are roughly equal, with a moderate trough between.

This formation is considered complete once cfd price makes second peak & then penetrates lowest point between the highs, known as the neckline. The sell signal from this formation occurs when the cfd market breaks-out below neckline.

In CFD, this formation is used as a early warning trading signal that a bullish cfd trend is about to reverse. However, it is only confirmed once the neckline is broken and the cfd market moves below the neck-line. Neckline is just another name for the last support level formed on the CFD chart.

Summary:

• Forms after an extended move upward
• This formation indicates that there will be a reversal in the cfd trading market
• We sell when the price breaks out below the neck line point: see below for an explanation.

The double top look like an M Shape, the best reversal cfd signal is where the second top is lower than the first one as shown below, this means that the reversal can be confirmed by drawing a downwards cfd trend line as shown below. If a trader opens a sell signal the stop loss will be placed just above this downwards trend line.

M-Shaped

Double Bottoms

This is a reversal cfd pattern which forms after an extended downward cfds trend. It is made up of two consecutive troughs which are roughly equal, with a moderate peak between.

This formation is considered complete once cfd price makes second low and then penetrates highest point between the lows, known as the neckline. The buy indication from this bottoming out signal occurs when the cfd market breaks-out the neckline to the upside.

In CFD, this formation is an early warning signal that the bearish cfd trend is about to reverse. It is only considered complete/completed once the neck line is broken. In this formation the neckline is the resistance level for the cfd price. Once this resistance is broken the cfd market will move up.

Summary:

• Forms after an extended move downward
• This formation indicates that there will be a reversal in the cfd trading market
• We buy when price breaks out above neck-line point: see below for an explanation.

The double bottom pattern look like a W-Shape, the best reversal cfd trading signal is where the second bottoms is higher than the first one as displayed below, this means that the reversal can be confirmed by drawing an upwards cfd trend line as shown below. If a trader opens a buy trading signal the stop loss will be placed just below this upwards trend line.

W-Shaped