Reversal Trading Patterns
These patterns are formed after the btcusd trading market has had an extended move up or down and the price reaches a strong resistance or support respectively.
When price reaches such a point it starts to form a pattern. Since these formations are frequently formed it's easy to spot them once you learn how & begin using them. There are four types:
- Double Top
- Double Bottom
- Head & shoulders
- Reverse Head and shoulders
This learn bitcoin 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 pattern that forms after an extended upwards trend. As its name implies, this formation is made up of 2 consecutive peaks that are roughly equal, with a moderate trough between.
This formation is considered complete once price makes second peak & then penetrates lowest point between highs, called the neckline. The sell signal from this formation occurs when the btcusd market breaks below the neck-line.
In Bitcoin, this formation is used as a early warning signal that a bullish trend is about to reverse. However, it is only confirmed once the neckline is broken and the btcusd trading market moves below neckline. Neckline is just another name for the last support level formed on the Bitcoin chart.
Summary:
- Forms after an extended move upwards
- This formation indicates that there will be a reversal in btcusd trading market
- We sell when price breaks below the neck line point: see below for explanation.
The double top look like an M-Shape, the best reversal 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 trend line as shown below. If a trader opens a sell signal the stop loss will be placed just above this downward trend line.
M Shaped
Double Bottom
This is a reversal pattern that forms after an extended downwards trend. It is made up of 2 consecutive troughs that are roughly equal, with a moderate peak between.
This formation is considered complete once price makes second low & then penetrates the highest point between lows, known as the neckline. The buy indication from this bottoming out signal occurs when the btcusd trading market breaks the neck line to the upside.
In Bitcoin, this formation is an early warning trading signal that the bearish trend is about to reverse. It's only considered complete/confirmed once the neck line is broken. In this formation the neckline is the resistance level for the price. Once this resistance is broken the btcusd market will move up.
Summary:
- Forms after an extended move downward
- This formation indicates that there will be a reversal in btcusd trading market
- We buy when price breaks above the neck line point: see below for explanation.
The double bottom pattern look like a W Shape, the best reversal cryptocurrency 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 trend line as shown below. If a trader opens a buy signal the stop loss will be placed just below this upward trend line.
W Shaped
