CHART PATTERNS
Reversal Formations
The End Of The Trend
by Cornelius Luca
You're riding along with the trend, watching your returns consistently
increase. You know it's not going to go on forever... but how do you know
when it'll end?
As much as we like trends and their inherent
profitability, all good things must eventually come to an end. Dealing
with their demise is easier said than done; it's not only that traders
loathe parting with a good thing, but ending trends is often a messy affair
that can take its toll on your budget. However, there are several reversal
formations you can watch for that may give you a warning that the trend
is almost over.
The most significant trend reversal patterns are the following:
1. Head & shoulders and inverse head & shoulders
2. Double top and double bottom
3. Triple top and triple bottom
4. V-top
Arguably, the second tier of reversal formations are:
1. Rounded top and rounded bottom
2. Rectangle reversal
3. Diamond
4. Upthrust and spring
This article will analyze the head & shoulders formation, using
currency pairs as examples.
FIGURE 1: A HEAD & SHOULDERS FORMATION. Here you
see a head & shoulders formation occur on the daily chart of the New
Zealand dollar/US dollar.
...Continued in the December issue of Technical Analysis
of STOCKS & COMMODITIES
Excerpted from an article originally published in the December 2004
issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 2004, Technical Analysis, Inc.
Return to December 2004 Contents
