Trend Reversal Patterns

We all know the saying “the trend is your friend”. And we should adhere to this saying, because trading against the trend will cause permanent losses, thus, it will allow you to save capital. However, how do you know when the potential for directional movement is already breaking and you should optimize your trading positions in the fix api forex market? That’s why there are trend reversal patterns.

The patterns of the trend reversal make it possible to find out the end of the movement with a great accuracy with the help of turning technical figures. Reversal patterns can be divided into two subcategories: combinations of several candles (2-4 price bars); combination with a large number of candles (more than 20).

The first kind that is a combination of several candles can be divided into two most popular types:

  • Pin bar: this reversal pattern is formed with a combination of three candles, but the trading signal of the fix api trader is given by the last one, which should show a special form. According to this pattern, a combination of three candles should be on the top or bottom of the market. The first two candles should show the same direction and have a candle body more than normal. The third candle should also be traded according to the trend, but be closed back from it and thereby form a large directed shadow, and the body should be less than 4 times shorter than the shadow. According to this combination it is necessary to open deals in the direction of the pin bar (the last candle), which will allow you to trade with a short stop and enter at the beginning of a new trend.
  • Doji: are patterns that indicate equality between the purchases and sales. If the doji is also formed on the bottom or the top of the fix api forex market, you can get confirmation by back candle. If it is directed against the trend, you should expect further correction or reversal, because there was a turning point in the doji, in which the purchases equaled the sellers (and vice versa) and continue to build up their positions.

The second kind that is a combination of a large number of candles can be divided into two most popular types:

  • Head-shoulders: this combination of candles appears with the help of a large number of price bars and its formation may take some time. The essence of this combination consists in 5 consecutive extremes, which form three peaks or valleys. In this case, the central peak must be the largest among the two standing side by side. If such a combination works, then the trader receives a trading signal ( ) and must place a sell order under the base of this figure for the purpose of a subsequent reversal with the same length as the top/bottom of the head. Another element should be chosen by the level of loss fixing, because according to the classical interpretation, SL should be put behind the last shoulder, and this can be a long distance in points.
  • Double bottom/top: formed behind a similar model, like the head of the shoulders, but it has only two peaks/hollows that are the same in length. Similarly, this combination should be formed on the local maxima or minima of the graph. Trade in accordance with this reversal pattern implies the opening of positions on the breakdown of the middle formation with the aim of the figure length itself. Often, this formation already appears when the fix api trader already has signals for buying or selling, which can act as an additional filter in predicting the future value of the financial asset.

The price patterns that I have described above will allow you to both optimize the current transactions and enter at the very beginning of the new trend formation. Use these candle combinations with your trading system, because their versatility can be used in combination with other elements of both technical and fundamental analysis.

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