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Bearish Reversal Chart Pattern

Bearish reversal chart pattern are just the opposite of bullish reversal chart patterns. Knowing a few of these patterns will help you a long way in your investments.

Most changes in trend do not happen abruptly. Stocks usually show us signs before they reverse trend. Bearish reversal patterns will help you to avoid danger, protect your profits or initiate short positions.

We will be looking at the same 4 patterns that is discussed in the bullish reversal patterns. All you need to do is just flip it. They are just the exact opposite.

They are...

  • Double Top
  • Triple Top
  • Head and Shoulders
  • Reverse Cup and Handle
  • Double Top

    double top 1

    The double top is the opposite of the double bottom. It looks like a 'M'. The price rises to A, then it drops a little forming a middle low before rising again. The sellers cannot overcome the buyers and the buyers pushed the price up.

    However, the stock finds resistance at the price level of A. Thus, the price drops again at B. The double top is completed when the price drops below the middle peak.

    The entire pattern can be formed from days to weeks and sometimes months. The rule is, the longer it takes the double top to form, the more significant the warning it gives us.

    The double top can be a very powerful reversal signal. New bear markets or downtrends can begin after a double top. Take a look at the chart above. A new downtrend developed after a double top. Therefore, always be on the look out for this chart pattern.

    How to trade the double top

    double top 2

    There are a few ways you can trade the double top. You can enter either at 1, 2 or 3. Entering at 1 is more agressive while entering at 2 or 3 is less agressive.

  • There are some people who like to enter at 1. This is a slightly more agressive entry. However, if you are successful, the rewards can be great. To ensure success, traders will usually look for other confirmations. These confirmations can be the appearance of a doji or shooting star, a divergence in the oscillators and bearish sentiment confirmation.
  • There are some people who enter at 2. Notice the blue line? When the stock crosses below the uptrend line, we say that the stock has broken the uptrend line. However, I personally prefer to enter at 1 or 3.
  • Entering at 3 is the safest. A double top has formed. The middle low in the double top acts as a resistance. The low after 2 has also absorbed the remaining buyers. Thus, this can be a good entry point especially if there are other confirming signals.
  • A wonderful discovery

    By now you would have realised that everything in the bullish reversal chart pattern are the opposite of the bearish reversal patterns. You just need to flip it and change the wordings.

    I have purposely put it in and flip the criterias for you. Beginners may still find it difficult to flip it in their minds. Soon you will get the hang of it.

    As you progress in your learning journey, you will realise that many bearish criterias are just the opposite of the bullish ones. Although, at times there are subtle differences. See, it isn't that difficult right?

    By learning one, you will be able to master the other. Soon you will be able to go long and short a stock without much difficulty. And the good news is...

    You will be able to make money whether the market is up or down!

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