Reversal Patterns in trading (DEMAND/SUPPLY EXHAUSTION PATTERNS)

[Savemore]

We are currently in a bull market and many people do not understand what are reversals. First of all, reversals in trading are the change of trend and price direction or change of a price level from resistance/support to support/resistance after a breakout/breakdown. There are 3 trends in the market cycle which are uptrend, downtrend and sideways and we can anticipate the reversal by knowing and understanding the patterns. These patterns can help you especially for those who have struggles in their trading journey. Why do you need to understand and become aware of these patterns? It is simply because pattern recognition is one of the aspects in trading of cryptocurrencies. There are a lot of bad cultures when it comes to trading where they treat trading as gambling because they are just trading without conviction and without any kind of analysis where they just click the button which is the buy whenever they see a green or a red candle.


Seller exhaustion and buyer presence = Bullish Reversal Patterns
Buyers exhaustion and seller presence = Bearish Reversal Patterns.



There are two reversal patterns which are the BULLISH reversal and the BEARISH reversal pattern.


BULLISH Reversal pattern- This reversal pattern happens when a stock is coming from a downtrend and starts to shift trend to an uptrend. So basically, we will find the bullish reversal pattern when the market is now transitioning into a bull market.

Double Bottom Pattern – A double bottom pattern happens when the support is tested and visited twice and holds in that level before reversing to uptrend.  The double bottom pattern is just like the letter “W” but not all the times that the representation of the double bottom is the letter “W”.

 

Triple Bottom Pattern – A triple bottom pattern happens when the support is tested and visited trice and holds in that level before reversing to uptrend.

 

Inverted head and shoulders pattern- The inverted head and shoulder pattern show a level of support, and the neckline as its resistance.

 

BEARISH Reversal pattern- This reversal pattern happens when a stock is coming from a uptrend and starts to shift trend to an downtrend. So this is basically the vice versa of the Bullish Reversal pattern. This bearish reversal pattern can help us to identify if the trend is now against us and it is a sign that we should now minimize our positions in the market.

Double Top Pattern- A double top pattern happens when the resistance is tested and visited twice and holds that lever before reversing to downtrend. Usually it is looks like a letter “M” but not all the times it is looks like that.

 

Triple Top Pattern-  A triple top pattern happens when the resistance is tested and visited trice and holds in that level before reversing to downtrend.

 

Head and Shoulders pattern-  The head and shoulder pattern show a level of resistance, and the neckline as its support.

 


If you have questions just ask in this thread! Thank you 

UNDERSTANDING > MEMORIZING

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[adaseb]

Yes you make it sound so easy because you picked all the examples where those patterns worked. However look at how many times in the past your double,triple, head and shoulders patterns failed to hold. Basically in hindsight it all looks easy however try and trade it in real time.

Believe me about a decade ago I bought all the courses and eBooks that though these patterns, however they are very difficult to apply to real forward trading. The best indicator is maybe trend and maybe some type of fundamental news like the Paypal or election news. And then use you those patterns to pin-point a great trade. Use a tight stop with good risk reward and you are set.

[Tytanowy Janusz]

Yes you make it sound so easy because you picked all the examples where those patterns worked. However look at how many times in the past your double,triple, head and shoulders patterns failed to hold. Basically in hindsight it all looks easy however try and trade it in real time.

Believe me about a decade ago I bought all the courses and eBooks that though these patterns, however they are very difficult to apply to real forward trading. The best indicator is maybe trend and maybe some type of fundamental news like the Paypal or election news. And then use you those patterns to pin-point a great trade. Use a tight stop with good risk reward and you are set.

The key about technical analysis is that it gives you statistic advantage. In theory this patters work more than 50% times. Thats it. So after 100 trades you should be on  profit with more than 50 if you apply them perfectly. And you will not because you will not open position in perfect spot because bunch of trading bots will do it before you pushing price, you are only human and you will make mistakes etc. This few factors may push you from >50% wins into <50% wins. Thats why manual trading based only on technical analysis is hard and in most cases yeld worse returns than other methods. But ... it doesn't change the fact that it is worth to know TA and those patters because it will help you find good price to exit from long trade based on FA (or FA news) and in "whale hunting" strategy - When i see that, based on TA, price should dump but it doesn't I know that whale use huge TA lovers and algo bots demand to fill bags.

About pure TA strategy:
https://bitcointalk.org/index.php?topic=4420866.msg39412664#msg39412664

[GreatArkansas]

I am using these kinds of patterns with CARE. These kinds of patterns may lose your position also since this is like catching a knife since you entering in the bottom which in some cases are in resistance (short), support (long).
Once it breaks on the resistance or support, the pattern may become invalid.

A quick tip: Use higher time frames.

[justdimin]

Both double/triple top or bottom and head&shoulder formation are usually high effective chart patterns we can make use of, always. Thanks a lot OP for getting one more chance to go through the basics of chart reading (as I do not get time to fresh up my basic learning these hectic days).

The simple logic behind all these patterns is, market is trying to break the support (or resistance) levels but it is getting failed for two or three consecutive times in a row which tells us a definite trend reversal will be inevitable. So, when market is failing to break either support or resistance levels for more than one time, we can go for buying or selling based on the pattern where it will be appearing.

A quick tip: Use higher time frames.

I just want to add another one: if you are able to merge these patterns with your support/resistance analysis then you can easily catch exact trend reversal levels.

[Harlot]

Pattern formation is one thing but confirming the reversals is another, I've been observing long enough for me to tell that Bitcoin's price movement has shown that there are hundreds of formations failed just because there isn't enough volume to make it happen. Yeah the pattern is there but there is no volume backing it up thus making the pattern fail do a reversal. People who analyze the charts will only show you what pattern is forming but they fail to show you that the volume says otherwise making their analysis incomplete or incorrect.

[death69]

Newbies definitely need those pattern. Practicing is the best way to make those patterns easier to spot. I have been using those for since I was a novice. Really appreciate what you did here for people who are interested in trading.

Dont hesitate to learn. Learning is the best way to achieve what you are missing in this aspect. Trading is not as easy as you think and it is a tough job for anyone who want to change their life as well as their job. But once you succeed, the rewards is outstanding. Free to choose where to live and free to choose where to make your call

A quick tip: Use higher time frames.

Not necessary at all. It depends on what strategies you are using and what type of money managing you follow. But the higher the time frame, the more correct the patterns will be. As my experience, technical analysis only takes 20% of your efforts. 80% is about money management, your behavior and the capability of controlling your emotion

[exstasie]

Yes you make it sound so easy because you picked all the examples where those patterns worked. However look at how many times in the past your double,triple, head and shoulders patterns failed to hold. Basically in hindsight it all looks easy however try and trade it in real time.

I've never actually seen a triple bottom in real life. It's a unicorn. The example in the OP is just successive higher lows. Same with the triple top example. It's a double top followed by a lower high failure.

I do think completed patterns (like an H&S that has broken the neckline and the head pivot) have some value. A problem I've often noticed with novice traders is they see potential patterns (like an incomplete H&S approaching the neckline) and trade them without any confirmation. Then the pattern often never completes.

This goes back to my mantra that traders should focus on reacting to the market, rather than trying to predict it. Waiting for a breakout and then trading it is a much more reliable strategy than trading based on a predicted breakout.

[Savemore]

Yes you make it sound so easy because you picked all the examples where those patterns worked. However look at how many times in the past your double,triple, head and shoulders patterns failed to hold. Basically in hindsight it all looks easy however try and trade it in real time.

I've never actually seen a triple bottom in real life. It's a unicorn. The example in the OP is just successive higher lows. Same with the triple top example. It's a double top followed by a lower high failure.

I do think completed patterns (like an H&S that has broken the neckline and the head pivot) have some value. A problem I've often noticed with novice traders is they see potential patterns (like an incomplete H&S approaching the neckline) and trade them without any confirmation. Then the pattern often never completes.

This goes back to my mantra that traders should focus on reacting to the market, rather than trying to predict it. Waiting for a breakout and then trading it is a much more reliable strategy than trading based on a predicted breakout.

Quick note* This is just a reversal patterns, do not treat it as a holy grail strategy where it will guarantee sure gains. Always wait for confirmation before you make a decision, do not just buy quickly just because you see a reversal pattern. Just react and make a move if there will be a breakdown or breakout that happened. There is a misconception that I just read because they think that these patterns can make them to have sure profit but the thing is it is not true. It just pattern and our bias can be wrong. Waiting confirmation is more good than anticipating because if there is already confirmation, then there is a high possibility that a reversal will suddenly happen. I suggest to people to make a backtesting first in these patterns before you able try it in your real portfolio.