Reversal trading patterns are the trend-catching ones.
By studying and analysing these types of patterns, you will be on the right trend.
When trend changes in the opposite direction, such patterns are called reversal trading patterns.
When we get these patterns on the chart, the trend may reverse.
Reversal trading patterns are,
Head And Shoulder Pattern: (Reversal Trading Patterns)
The Head and shoulder pattern contains a left shoulder, an ahead, and a right shoulder.
It is a bearish pattern and a symbol of a trend reversal from upside to downside.
At the end of the left shoulder, there will be support, and it will take help at the line of the left head.
The head is formed with the heavy volume, correction happens, and it will support the neckline.
At some times, the price may fall lower than the neckline.
A right shoulder is formed, the peak of the right shoulder will be lower than the head peak.
Downward breaking of the neckline of the right shoulder is the confirmation of the pattern.
Entry should be at the breakout of the right-hand shoulder, and stop-loss should be at the peak of the right-hand shoulder or 5 per cent of the stock.
Target should be the length of the head peak.
The right-hand shoulder peak should be lower than the head peak.
In some cases, the price will come back to test the neckline, so stop-loss should be above the right-hand shoulder.
Inverted Head And Shoulder Pattern. (Reversal Trading Patterns)
The inverted Head And Shoulder are quite the opposite of the head and shoulder.
It is a bullish pattern, and we may go long at the breaching point of the neckline.
In this pattern, there will be a left shoulder, head, and right shoulder.
The bottom of the right shoulder would be higher than the bottom of the neck.
After breaching the neckline, we can make our entry, and stop-loss should be the bottom of the right-hand shoulder.
Our target should be the same distance as the head.
Double top pattern. (Reversal Trading Patterns)
It is a bearish pattern, and it looks like an emulator.
It has two peaks at the same level.
A minor correction is placed at the end of the left top; it takes support on a neckline.
The right top is formed on a rally, and a correction takes place at the same neckline.
The breaching of the right-hand peak confirms the completion of the double top pattern, and we can initiate our short sell position when prices reach the neckline.
Stoploss will be placed at 5 per cent of prices or above the second top.
Our target will be the same distance at the second peak of the neckline.
Double Bottom Pattern. (Reversal Trading Patterns)
The double bottom pattern is the inverse of the double top design, and it will look like a W letter.
The bottom takes support at some level, and the second bottom will take the help at the same level.
With the breach of the neckline, we can enter our buy position by keeping the stop loss at the bottom of the second bottom or 5 per cent of the value.
Target should be at the same distance between the neckline and support level.
Broadening Triangle Pattern. (Reversal Trading Patterns)
Broadening Triangle Pattern is a bearish pattern.
It contains three or four perfect peaks, and the second bottom should be lower than the first bottom.
It is seen at the top of the bullish rally, and it is the powerful bullish pattern.
We can initiate a short sell position with breaching of the first bottom.
Stoploss will be placed at 5 per cent of the prices, less or above the third peak.
Target will be 2/3 rd distance of the bull trend.
By identifying the reversal pattern, we can get an early signal to exit from our buying or selling position and take our new buy or sell reversal position.
Remember one thing before trading reversal patterns, after the confirmation of reversal pattern, and you have to take the assurances of RSI moving average Bollinger band and MACD and some fundamental indicators.
I prefer these four indicators for the confirmation of reversal trading patterns.
These are the best indicators for Reversal Trading Patterns
- Moving Average
- Bollinger Band
- Relative Strength Index (RSI)
- MACD crossover
How to Trade in stock Intraday with the help of Moving Average: (Reversal Trading Patterns)
Trading by using the moving average will be accurate
Enter the long trade, when a cross-over of moving average takes place towards the bullish side.
And your stop loss should be the day low.
And your target would be according to your risk-reward ratio.
Enter the short trade when a cross-over of moving average takes place towards the bearish side.
And your stop loss should be the day high.
And your target would be according to your risk-reward ratio.
I suggest the 5 minute time frame for the intraday traders.
How to Trade in stock Intraday with the help of Bolinger Band:(Reversal Trading Patterns)
Bolinger band will give the early signal, whether the market is moving towards the bullish side or bearish side.
If the Bolinger band is in a narrow position, that means contracting, and the signal is that market is in consolidation mode, so do not enter any trade while the market is in consolidation mode; wait for the scrip for picking movement.
The signal of whether the market is picking movement is, our indicator Bolinger band will expand, or it will show some expansion moment.
You can enter the trade after the expansion of the Bolinger band.
Remember Bolinger band will show whether the market is in bullish mode, consolidation mode, or bearish mode.
When the 5-minute candle has opened outside the Bolinger band, that trade will not be much effective.
Trade will be effective when the candle stays on the inner side of the Bollinger band.
I will trade when the candle is on the inner side of the Bollinger band.
I will avoid trading when the candle opens outside the Bollinger band.
How to Trade in stock Intraday with the help of Relative strength index (RSI): (Reversal Trading Patterns)
The relative strength index will be helpful to take the trade or exit from the market.
RSI will confirm to take the trade or exit.
If the RSI level is above the value of 50, then it is the most probable of entering the buy trade.
If you had entered the trade above the RSI 50 level, In the middle of the market, if the value of the RSI drops below 50 (It will occur in rare cases), In that case, the trade may not perform most accurately.
Remember one thing; all indicators will show the direction of the market.
MACD Crossover: (Reversal Trading Patterns)
MACD crossover is a lagging indicator.
It is a moving average convergence divergence indicator.
It is a trend following indicator, and it can represent as MACD.
MACD crossover uses two moving averages, 12 EMA and 26 EMA.
By subtracting 12 EMA from 26, EMA will be able to calculate MACD.
MACD also act as a momentum oscillator, and it is a beneficial indicator to know about trend and momentum.
The two moving averages used for the calculation of MACD crossover are slow moving average and fast moving average.
The default settings in the trading view platform are 12. 26 and 9.
These settings can change on a time management frame, and I always recommend using the default settings given in the software.
In the MACD indicator, as shown in the image, the blue line is the first line, that is MACD, the orange line is the signal line, the green bars and the red bars above and below the zero line or central line are histogram.
MACD oscillates above and below the central line.
When MACD crossovers above the zero lines, then the sentiments are on the bullish side, and the trend will change into an uptrend.
When the MACD crossover below the zero lines, the sentiments are towards the bearish side, and the trend will change into a downtrend.
All the above cases discussed are all probabilities; there are no sure shot points in the stock market.
I may confidently say that if you follow the above rules, you can get the most accurate trade-in Reversal Trading Patterns.
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