Reversal Chart Patterns

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

When commodity 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 Bottom
• Head & shoulders
• Reverse Head & shoulders

This learn commodity trading 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 trading pattern that forms after an extended upward commodities trend. As its name implies, this pattern is made up of 2 consecutive peaks that are roughly equal, with a moderate trough between.

This formation is considered complete once commodity price makes second peak & then penetrates the lowest point between the highs, called the neckline. The sell signal from this formation occurs when the commodities trading market breaks below neck-line.

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

Summary:

• Forms after an extended move upwards
• This formation indicates that there will be a reversal in commodities trading market
• We sell when price breaks out below the neckline: see below for explanation.

The double top look like an M Shape, the best reversal commodity 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 downward commodity 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 Bottom

This is a reversal trading pattern that is formed after an extended downward commodities trend. It is made up of two consecutive troughs that are roughly equal, with a moderate peak between.

This formation is considered complete once commodity price makes the second low & then penetrates the highest point between the lows, called the neckline. The buy indication from this bottoming out signal occurs when the commodities trading market breaks the neck line to the upside.

In Commodity Trading, this formation is an early warning trading signal that the bearish commodity trend is about to reverse. It's only considered complete/confirmed once the neckline is broken. In this formation the neckline is the resistance level for the commodity price. Once this resistance is broken the commodities trading market will move up.

Summary:

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

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

W-Shaped