Reversal Patterns In Japanese Candlestick Patterns - How You Can Profit From Trend Reversal Patterns
There are many reversal patterns in Japanese candlestick theory, let us analyze the most widely used ones.
The first reversal pattern is head and shoulders.
They can be normal or inverted.
The normal one is represented by three peaks with the central peak being the highest.
The inverted head and shoulders is represented by three valleys with the central one being the lowest.
For the normal pattern we draw a line through the lowest points either side of the head.
A break through this line provides a sell signal.
In the case of an inverted head and shoulders, the neckline is drawn through the top of the two peaks and a break through this line provides a buy signal.
The second major reversal pattern are ascending and descending wedges.
This pattern happens when the slope of the price candles joint at the same point forming a wedge pattern.
For an ascending wedge the slope of the lower line is steeper than the higher one.
An ascending wedge indicates that a break out of the pattern is imminent, and in this case it would be a break to the downside.
When they materialize, wedge breakouts can be very dramatic.
The other wedge reversal pattern is the descending wedge, which indicates a bullish signal.
This formation happens when the slope of the price candle joint at the same point forming a descending wedge.
This time, the slope of the upper line is steeper than the one of the lower line.
This pattern indicates that a break to the upside is imminent.
Another very common Japanese candlestick reversal pattern is the "123 higher lows and lower highs".
This formation is generally a good continuation pattern but at the bottom or top of a trend can be a signal that the trend is about to change direction.
It is called the "123 higher lows and lower highs" because it is a series of three waves, where the third one is a failed test of a previous high or low.
The failed test signifies the inversion from bull to bear market, and vice versa.
This third wave can be referred to as a "lower high" or "higher low".
The secret behind profitable forex trading is knowledge - as is the case with reversal patterns and other parts of technical analysis, the more patterns you know the higher your chances of reaping in the pips.
One of the advances that the internet brought over the last few years is the presence of many websites that offer free, quality training on forex trading strategies - helping you become a successful forex trader.
The first reversal pattern is head and shoulders.
They can be normal or inverted.
The normal one is represented by three peaks with the central peak being the highest.
The inverted head and shoulders is represented by three valleys with the central one being the lowest.
For the normal pattern we draw a line through the lowest points either side of the head.
A break through this line provides a sell signal.
In the case of an inverted head and shoulders, the neckline is drawn through the top of the two peaks and a break through this line provides a buy signal.
The second major reversal pattern are ascending and descending wedges.
This pattern happens when the slope of the price candles joint at the same point forming a wedge pattern.
For an ascending wedge the slope of the lower line is steeper than the higher one.
An ascending wedge indicates that a break out of the pattern is imminent, and in this case it would be a break to the downside.
When they materialize, wedge breakouts can be very dramatic.
The other wedge reversal pattern is the descending wedge, which indicates a bullish signal.
This formation happens when the slope of the price candle joint at the same point forming a descending wedge.
This time, the slope of the upper line is steeper than the one of the lower line.
This pattern indicates that a break to the upside is imminent.
Another very common Japanese candlestick reversal pattern is the "123 higher lows and lower highs".
This formation is generally a good continuation pattern but at the bottom or top of a trend can be a signal that the trend is about to change direction.
It is called the "123 higher lows and lower highs" because it is a series of three waves, where the third one is a failed test of a previous high or low.
The failed test signifies the inversion from bull to bear market, and vice versa.
This third wave can be referred to as a "lower high" or "higher low".
The secret behind profitable forex trading is knowledge - as is the case with reversal patterns and other parts of technical analysis, the more patterns you know the higher your chances of reaping in the pips.
One of the advances that the internet brought over the last few years is the presence of many websites that offer free, quality training on forex trading strategies - helping you become a successful forex trader.
