Different Types of Reversal Patterns Reversal patterns mean the formation of candlesticks which indicate the end of the existing trend (uptrend or downtrend). When such formation appears in a downtrend, it indicates a bullish reversal or end of selling spree and onset of buying spell. Conversely, when a trend reversal pattern forms in an uptrend, it warns traders of a possible end to bullish run and onset of a slump.
Head & Shoulder Pattern It’s a chart formation created by three peaks of the price. The two peaks on the sides are usually of the same height or close, and the one in the middle is the highest. The Head & Shoulders pattern is considered one of the most powerful reversal patterns. This pattern got the name because it actually reminds us of a head with two shoulders on the sides. Usually, we will look for this pattern and use it after a significant uptrend or an opposite Head & Shoulders after a downtrend.
Inverse Head & Shoulder Pattern Inverse head and should is exactly the opposite of the head and shoulder pattern. It’s a chart formation created by three troughs of the price.