Successful Trading Chart Patterns – Part 3 of 7

Uptrend Reversal Patterns

 

8. Rising Wedge

 

Rising wedges are virtually always reversal patterns in an uptrend. Rising wedges represent the start of a more substantial reversal and can form into additional patterns, such as a rounding top. Hence, the targets after a breakout are limited. Volume is a necessary piece of information with the rising wedge is developing. Volume should be high on the continuation of the trend as the first leg of the wedge forms. Volume should then decline as the consolidation nears the wedges apex. As the breakout occurs, volume should spike. Be aware of a downside breakout and retest of the prior support lines. If this test fails, be ready for a trade downward or the development of another, larger pattern.

9. Head and Shoulders

Rising wedges are almost always reversal patterns in an uptrend. Rising wedges represent the beginning of a larger reversal and can take shape into additional patterns, such as a rounding top. Hence, the targets after a breakout are limited. Volume is an important piece of facts with the rising wedge is creating. Volume should be high in continuation of the trend as the first leg of the wedge forms. Volume should then decline as the consolidation nears the wedges apex. As the breakout occurs, volume should spike. Be alert to a downside breakout and retest of the last support lines. If this test fails, be ready for a trade downward or the organization of another, larger pattern.

10. Double Top

Double top formations can be tricky if they’re not well-defined. A number of other formations start with a double top, like a triple top, rectangle, and ascending triangle. The response to the sell side should be significant, which may be an early signal that the uptrend may well be weakening. Volume should decrease as the second leg builds to the previous high. If volume increases and downward selling increases, the probability goes up for a double top formation. To confirm the development, be certain the cost closes below the response low. Be mindful of the retest of the response low, which is now resistance, and prepare for a downward trade. If the downside breakout does not occur or the retest of the response low is productive and breaks through, the formation is no longer valid.

 

11. Rounding Top

 

In a rounding top, symmetry is an important distinction. The more dependable rounding top patterns do not wander from the boundaries of a firm semi-circle. Rounding tops can normally be in comparison to a head and shoulders pattern with two left shoulders, one head, and two right shoulders. Any patterns that change from this description can potentially be another pattern all together. If volume declines on each rally upward and the price keeps rising, search for divergent price and indicators, which may start the cost reversal any time.

 

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