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Technical analysis II

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9. Reversal patterns

Price trends, whether upwards or downwards, have to end at some point. The problem comes in predicting how and when.

Technical analysts have identified a number of so-called "reversal patterns" which indicate the end of a trend. The most common of these are:

Each of these has a distinctive shape on a chart.

One important factor in identifying reversal patterns is volume - the number of shares traded in the stock. Often a chart will look like it is developing one of the accepted reversal patterns, but then the reversal will fail to materialise and the price will continue on its upward or downward trend (i.e. not 'reverse'). Volume can help you distinguish between a real reversal pattern and a dummy one.

On the following pages, you'll find descriptions not only of the reversal patterns themselves, but also of volume that you should expect to accompany these patterns.

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