Forex Technical

Forex Technical
Trend Reversal Patterns

Head and Shoulders
The Head and Shoulders pattern is one of the most classic patterns in a technical analyst’s toolkit. This three-peak formation is named for its resemblance to a head and two shoulders. The center peak (head) protrudes above the remaining two peaks (shoulders), which are set at or close to identical levels. The common line of support for all three peaks, which does not have to be a horizontal line, is known as the Neckline. The final downward penetration of the neckline confirms the start of a new downward trend.

There is a chance that even after there is a break of the neckline that the trend may not reverse. A good validation of a reversal would be if the break is significant or if the neckline is tested and it turns from support to resistance. Also, a trader should look and see if momentum was higher during the formation of the left shoulder compared to the right shoulder as this would indicate that buying pressure is decreasing and a true reversal pattern is taking place. During a true head and shoulders reversal, the downward move can be expected to be equal to the distance from neckline to head.

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Various Tops and Bottoms

Double Top
A double top is formed when the price of a pair in an uptrend rises and encounters resistance. Following this, price retreats to a support level which will become the neckline and subsequently returns to the resistance level. After failing to break the resistance level a second time the pair falls back down. At the neckline price breaks down into a new downward trend.

A real life example of a double top is presented below

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Flags & Rectangles


Flags Formations

Flags are a type of short-term pause in the dynamic and progressive movement of a market trend. Flags are usually marked by a sharp, almost horizontal entry into the pattern. Flags are bound by parallel lines of support and resistance. The pattern is commonly followed by a sharp break back into the prevailing trend. Flags have a tendency to form slanted in the direction opposite to the major market trend they inhabit.

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Chart Triangle

Symmetrical Triangle

A symmetrical triangle is indicative of a period of consolidation during an uptrend or a downtrend. The symmetrical triangle has a line of support that slopes upwards and a line of resistance that slopes downward. The triangle pattern yields to a breakout in the direction that corresponds with the trend beforehand, though not always.







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