CANDLESTICKS PATTERNS

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 CANDLESTICS PATTERNS

I will discuss about reversal pattern, reversal is a change in the direction of the price of an asset. Reversals can occur up or down.An uptrend, which is a series of higher swing highs and higher lows, reverses into a downtrend by changing to a series of lower highs and lows. A downtrend, which is a series of lower highs and lower lows, reverses into an uptrend by changing to a series of higher highs and higher lows.

Reversals are based on the overall price direction and usually not based on one or two periods / bars on the chart. Certain indicators, such as moving averages or trendlines, can help isolate trends as well as spot reversals

 

Double Top

The double top is a very bearish reversal pattern. Formed after the asset hit a high price twice in a row with a moderate decline between the two highs. It was confirmed after the asset price fell below a support level equal to the low between the two previous highs.

If a double top occurs, the second peak will usually be slightly below the first one indicating resistance and fatigue. Double tops can be a rare occurrence with their formation often indicating that investors are looking to profit from a bullish trend in the end

 


However, traders must be patient and identify critical support levels to confirm the identity of the double top. Basing a double top solely on the formation of two consecutive peaks can lead to false readings and lead to exiting a position earlier.

Double Bottom

The double bottom pattern is basically the opposite of the double top pattern. A double bottom is formed following a single bottoming pattern which can also be the first sign of a potential reversal. This pattern will usually occur at the end of an extended bearish trend.

A double bottom formation built from two consecutive lows can also conclude that investors are following the security to take advantage of its last push lower towards the support level. A double bottom will usually indicate a bullish reversal which provides an opportunity for investors to profit from a bullish rally. After a double bottom, a common trading strategy includes long positions that will profit from rising asset prices.