How to Read Reversal Patterns for New Traders

Below are illustrations of the common reversal chart patterns that novice traders should familiarize themselves with for trading.

Reversal Patterns

The often used reversal patterns are:

Double Tops Reversal Setup

The double top pattern presents as an "M" shaped structure with two prominent peaks or high points appearing on the price chart during an upward market movement.

The double tops pattern is a bearish pattern that emerges when the price hits a resistance zone.

The double top pattern forms when the price rises, dips slightly, rebounds to a previous high level or marginally below it, and subsequently declines again.

Double Bottoms Reversal Setup

The double bottom pattern forms a W shape with two lows appearing on the price chart during a downward trend.

Double bottoms chart pattern is a bullish pattern that forms when price reaches and gets to a support level.

Price drops down first. It rises a bit next. Then it falls again to the low point or just above. After that, it climbs back up. This forms a double bottom pattern.

Head and Shoulders Reversal Pattern

The Head and Shoulders configuration is a bearish reversal pattern observed in price action that fully develops following a sustained upward market movement.

This pattern starts with a first peak forming the initial shoulder, followed by a moderate price dip. Next is a second higher peak representing the head, then another dip before a final price peak forming the second shoulder.

The lowest points between the two price lows forms the neckline and the reversal signal from this head & shoulders reversal chart pattern is confirmed once price goes below this neckline.

Reverse Head & Shoulders Reversal Pattern

A Reverse Head & Shoulders chart pattern indicates a bullish reversal that appears after a downward trend.

There's an initial dip which is the first inverse shoulder then a modest peak in price, then a second lower dip which is the reverse head and then another price peak followed by the last price dip in price which is the second inverse shoulder.

The highest point between the two price peaks forms the neckline. The reversal signal from this reverse head and shoulders setup is confirmed once the price breaks above that neckline.

How Do You Read Reversal Setups for New Traders

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