Key Reversal Patterns in Practical Technical Analysis

Understanding candlestick patterns is essential to identifying potential market reversals. Below are some of the most effective bullish and bearish reversal patterns:

Bullish Reversal Patterns

• Morning Doji Star: A three-candle formation that indicates indecision followed by a bullish trend.
• Bullish Engulfing: A large white candle engulfs a smaller black one, signaling the end of a downtrend.
• Morning Star: Starts with a bearish candle, followed by indecision, and ends with a strong bullish move.
• Hammer: A single-candle reversal pattern showing potential bottoming out.
• Piercing Line: Suggests the end of a mild downtrend.
• Stick Sandwich: A white candle between two blacks indicates a support level.
• Three White Soldiers: Three long bullish candles in a row signal strong upward momentum.

Bearish Reversal Patterns

• Evening Doji Star: Indicates a loss of bullish momentum and possible downtrend.
• Three Black Crows: Three consecutive bearish candles reflect growing selling pressure.
• Evening Star: Similar to the Morning Star but signals a trend reversal to the downside.
• Dark Cloud Cover: A bearish reversal pattern that begins with a long white candle followed by a black candle closing below the midpoint.
• Bearish Engulfing: Large black candle that engulfs the previous white one, signaling bearish control.
• Shooting Star: A bearish signal that looks like an inverted hammer with a small real body and a long upper wick.

Breakout and Continuation Patterns

Identifying the reversal points and price breakout patterns is a crucial skill in practical technical analysis. Here are seven commonly used breakout formations:

1. Parabolic Breakout
2. Symmetrical Triangle
3. Bull Flag
4. Ascending Triangle
5. Failed Descending Triangle
6. Rounded Bottom
7. Flat Base and Measured Move

Continuation & Reversal Structures

• Cup and Handle: Represents a bullish continuation or reversal depending on context. The cup forms a U-shape, and the handle marks a slight consolidation before the breakout.
• Head and Shoulders: A reversal pattern that signals a shift from bullish to bearish (or vice versa) using three peaks.
• Double Bottom: Looks like a “W” and signals a strong support level followed by upward movement.
• Triple Bottom: Similar to the double bottom but with an extra test of support before a bullish breakout.

Practical technical analysis Summary

Practical technical analysis equips traders with the tools to decode price movements using real-time chart patterns and basic calculations. From candlestick setups to breakout confirmations, mastering these patterns can significantly increase your edge in the markets.Ready to put your technical analysis skills to work? Start trading with confidence on PROP365 — where advanced traders get funded faster.