教育

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.

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📍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.

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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.

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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.

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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.

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