Five Powerful Reversal Patterns Every Trader Must know

By | January 5, 2023

Forex Trading Patterns

In this post, we will discuss five powerful and reliable reversal patterns in the forex market. Generally, reversal patterns provide a great risk-reward ratio potential. We will learn how to identify each of them and how to trade using these patterns.

What are reversal patterns?

A reversal pattern indicates a change in direction from a bull market to a bear market and vice versa. We can use this pattern to predict the next move and open or close our trades accordingly.

head and shoulders pattern

He Head shoulders pattern is a very unique reversal pattern. It is a chart formation created by three price spikes. The two peaks on the sides are usually the same or close in height, with the middle one being the tallest.

The Head & Shoulders pattern is considered one of the most powerful reversal patterns in the forex market. This pattern got the name because it actually reminds us of a head with two shoulders on the sides. Typically, we will look for this pattern and use it after a significant uptrend or an opposite Head & Shoulders after a downtrend.

in a uptrend, the price creates above – will be the left shoulder. Then, after the technical correction, the price creates a higher ceiling, which will be the head. Now the price will form a deep technical correction at the same level as the last low.

And lastly, the price creates a lower high, which is the right shoulder. The line that connects the three bottoms of the three peaks is called the Neckline. The confirmation of the pattern occurs after the price breaks the neckline. At the moment when the price breaks, the Neckline is considered a reversal signal, and that is the time to look for a short position or to look for a buy position on the opposite Head & Shoulders after a downtrend.

Examples:

Bearish Reversal Pattern – Head and Shoulders Reversed

Bearish Reversal Pattern – Head and Shoulders Reversed

Bullish Head & Shoulders Reversal

Bullish Head & Shoulders Reversal

How to predict the head and shoulders pattern 1 step before the price completes it

double top and bottom

He flysheet and the double bottom are both reversal patterns.

The double top pattern will usually occur and be useful after a significant uptrend. In an uptrend, the price always creates higher highs and higher lows.

The double top pattern is formed by two peaks at the same height. The situation of two peaks at the same height after an uptrend indicates that buyers are running out of power. The last bottom between the two tops is called the activation line.

The pattern will complete only when the price-escape the firing line. When the price breaks the trigger line, it is a signal for us to look at a price action setup for the sell item.

the double bottom it is the exact opposite of the double top pattern. It will usually be reliable and useful after a significant price downtrend.

In a downtrend, the price creates lower bottoms and lower highs.

The price creates two bottoms at the same level in the double bottom pattern, and the sellers failed to create a new bottom bottom. That indicates that the sellers are running out of steam, and a reversal opportunity could appear very soon.

The pattern will complete when the price breaks out of the trigger line, which is the last high between the two lows.

When that happens, we should look for a buy position.

Examples:

double top pattern

double top pattern

double bottom pattern

double bottom pattern

5ers-logo

like a pattern

Quasimodo is ddefinitely one of the most reliable and powerful chart patterns to identify investment opportunities.

Relatively, the like a pattern Technical analysis is new among forex traders. Like the previous patterns we mentioned, Quasimodo is most reliable and powerful if it occurs after a significant uptrend or downtrend.

The structure of the Quasimodo pattern is quite simple:

uptrend – the price creates higher peaks and higher lows. The price then fell from the last peak to form a new lower low. A new lower low indicates that the momentum has changed from bullish to bearish.

Usually, the entry level will be the last peak of the price.

Downward trend – The price creates lower lows and lower peaks. Then from the last low, the price moves up and creates a new higher high. After some lower highs, this new higher high indicates that the momentum has changed from bearish to bullish.

The entry level, in that case, will be the last minimum from where the price rises.

The Quasimodo pattern is a great pattern to trade as it creates great risk-reward potential.

Examples:

Reversal Patterns - Bullish Quasimodo

Bullish Quasimodo

bearish quasimodo

bearish quasimodo

Learn more about the Quasimodo pattern

Engulfing candlestick reversal pattern

the envelope candle pattern It is a reversal pattern that is formed by two candles.

Bullish reversal patterns appear after a downtrend: It starts with a bearish candlestick followed by a large bullish candlestick that engulfs the bearish candlestick. The bullish engulfing candle should close above the high of the previous candle. That indicates that the buyers are waking up and we should look for a price action setup for the buy position.

A bearish engulfing candlestick pattern will appear after an uptrend: The first candle in this formation will be a bullish candle, and the second is the bearish candle that engulfs the bullish one. The bearish engulfing candle should close below the low of the previous candle.

When this formation occurs, we need to start looking for a price action setup for the sell position.

Finding a bearish or bullish engulfing candlestick pattern in support/resistance levels it makes it much more powerful and reliable.

Examples:

Bullish Engulfing Candle - Reversal Patterns

bullish engulfing candle

bearish engulfing candle

bearish engulfing candle

pin bar chandelier

He peg bar candle pattern it is a sail formation. This candlestick pattern is considered a reversal pattern among forex traders. It is also considered one of the most powerful and reliable candlestick patterns to trade (it can also appear as an inverted hammer).

The structure of a bullish pin bar begins with a long tail at the bottom, called a “wick.” The tail should be at least 2/3 of the total size of the candlestick, which means a long lower shadow.

Then a small body which is the area between the open and close price, and in some of them also a small tail at the top.

When we get this type of formation after a significant downtrend, it indicates that a reversal opportunity will present itself soon. In that case, we should start looking for a price action configuration for the buy position.

The structure of a Bearish Pin Bar is the exact opposite, starting with a long tail at the top, then a short body and a small tail at the bottom for some of them.

When a bearish Pin Bar candlestick pattern occurs after a significant uptrend, we should start looking for a price action setup for the short position.

Examples:

Bearish Pin Bar - Reversal Patterns

bearish pin bar

bullish pin bar

bullish pin bar

Follow The Money With Pin Bar Forex Candlestick Pattern Support And Resistance Trading Strategy-

Reversal Patterns Summary

Reversal opportunities are rarer than impulse trades or continuation trades. Still, on the other hand, reversal patterns are usually more reliable and the risk-reward potential is higher because any reversal opportunity can sometimes be the start of a new trend, and what’s better than being in a trend? From the beginning?

In this post, I have outlined the 5 most powerful reversal patterns that I believe can help any trader gain a better risk-reward ratio in the long run.

Leave a Reply

Your email address will not be published. Required fields are marked *