This is a review of the fifth chapter of John J. Murphy’s Technical Analysis of the Financial Markets.
Major Reversal Patterns
The 5 most commonly used reversal patterns are:
- Head & Shoulders
- Triple Tops & Bottoms
- Double Tops & Bottoms
- Spike (or V) Tops & Bottoms
- Rounding (or Saucer)
Things to keep in mind while looking at reversal patterns:
- A prior trend should exist (the market should have something to reverse)
- The first sign of impending reversal is the breaking of a trendline
- The larger the pattern, the greater the impending move
- Topping patterns are usually steeper and more volatile than bottoms
- Bottoms have smaller price ranges and take longer to build
- Volume is more important on the upside
We will examine each of the 5 patterns above in subsequent posts.
