A reversal pattern is a chart formation that precedes a change in the trend. Most reversal patterns involve the price action of a currency pair breaking out of a certain range and then heading higher or lower – whichever is the reverse of the previous trend.
There are many reversal patterns, but they all share a common theme of the price action breaking through a set level of support or resistance. The head-and-shoulders and reverse head-and-shoulders are two common reversal patterns that trader’s use to identify the turning of a trend. However, reversal patterns are like any other chart pattern in that they can be misread or simply false.
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