{"id":5415,"date":"2022-01-14T15:36:46","date_gmt":"2022-01-14T07:36:46","guid":{"rendered":"https:\/\/blog.btse.com\/?p=3966"},"modified":"2023-06-02T09:44:01","modified_gmt":"2023-06-02T09:44:01","slug":"strongest-top-reversal-patterns-time-to-sell","status":"publish","type":"post","link":"https:\/\/www.btse.com\/blog\/strongest-top-reversal-patterns-time-to-sell\/","title":{"rendered":"Strongest Top Reversal Patterns: Time to Sell?"},"content":{"rendered":"

Top reversal patterns can be extremely useful to understand when a downtrend is about to start. What\u2019s more, they work with more than one strategy.\u00a0<\/span><\/i><\/p>\n

Charts help technical analysts understand market movements, and some patterns are more reliable than others in helping them make decisions.<\/span><\/p>\n

Some patterns are so popular that (almost) any trader makes the same moves when they appear in charts. Traders\u2019 behavior is what drives the price, and being able to recognize patterns as experienced traders do is extremely useful to make reliable predictions and make the right decision.\u00a0<\/span><\/p>\n

Of course, no pattern works 100% of the time, but they offer guidelines that can increase the chances of success.\u00a0<\/span><\/p>\n

This article does not constitute financial advice: we will show you the <\/span>most common top reversal patterns<\/b>, those that usually signal that a downtrend is about to start. As always, be responsible and always do your own research before investing your money.\u00a0<\/span><\/p>\n

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What Are Top Reversal Patterns?<\/b><\/h2>\n

Most of the technical analysis we use draws its origins from Japanese charting techniques. Japanese analysts, mainly for historical reasons, gave patterns names related to war actions. Sometimes western analysts modified the names of these patterns, but always use terms that somehow reflect what is visually evident on charts.\u00a0<\/span><\/p>\n

So you may find the patterns we are about to show you with different names, but we will use the most common denominations: <\/span>Head and Shoulders<\/span><\/i>, <\/span>Diamond Top<\/span><\/i>, <\/span>Double Top <\/span><\/i>and <\/span>Triple Top<\/span><\/i>. They are all top reversal patterns, but what does this mean?<\/span><\/p>\n

These patterns \u2013 usually medium or long-term patterns \u2013 are particular formations usually found at the end of an extended uptrend. They usually signal that a new and extended downtrend is about to start. We will provide you with images that make it easier to understand how these patterns develop, but you will discover that it is not always so easy to spot them correctly.\u00a0<\/span><\/p>\n

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Head and Shoulders<\/b><\/h3>\n

We will start with one of the most common chart formations, the<\/span> Head and Shoulders<\/b>.\u00a0<\/span><\/p>\n

This name derives from the fact that this formation looks like a half-length body, showing only a head and the shoulders, as you can see in the image below:\u00a0<\/span><\/p>\n

\"Head<\/p>\n

The Head and Shoulders develops during an uptrend. As we know, no trend is just a straight line, it develops and various small retests take place. In this case, the retest forms a sort of peak. The second peak is the highest one. The third peak is similar to the first one.\u00a0<\/span><\/p>\n

The support line is called the <\/span>necklin<\/i><\/b>e<\/span><\/i>, the line at which the price retests and rises again, forming those peaks we can observe in the image above.\u00a0<\/span><\/p>\n

This chart formation usually signals that the price reached its top, and it\u2019s time for a downtrend \u2013 so that is a reversal pattern.<\/span><\/p>\n

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Diamond Top<\/b><\/h3>\n

Among the patterns we are listing, the <\/span>Diamond Top<\/b> is maybe the hardest to correctly spot.\u00a0<\/span><\/p>\n

This is because the chart looks quite chaotic and complex, but in reality it is only an impression.\u00a0<\/span><\/p>\n

Pro tip<\/i><\/b>: When observing charts it is very important not to force patterns to fit your schemes or expectations.\u00a0<\/span><\/p>\n

Traders know that they have to step back from details and look at the whole picture, as well as they know that technical analysis and trading in general require discipline. Try to be as objective as possible, without letting your expectations or desires influence your analysis.<\/span><\/p>\n

\"Diamond<\/p>\n

Being another top reversal pattern, the diamond top usually develops during an uptrend. It is a long-term formation. You can observe it by connecting the highs and lows: if the price movement broadens and then narrows, forming a sort of rhombus, you get a diamond top. This pattern usually occurs before a downtrend \u2013 so yet another reversal pattern.<\/span><\/p>\n

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Double Top<\/b><\/h3>\n

The <\/span>Double Top<\/b> is far easier to spot if we compare it to other top reversal patterns, as you can see in the image below:<\/span><\/p>\n

\"Double<\/p>\n

This pattern forms a sort of \u201cM\u201d. It develops during an uptrend: the price reaches a resistance level and retests until reaching a support level. At this point, it goes upwards again and reaches the same resistance zone of the previous peak. The top of this second peak should represent the highest point reached by the price before a downtrend.\u00a0<\/span><\/p>\n

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Triple Top<\/b><\/h3>\n

The <\/span>Triple Top<\/b> is very similar to the Double Top, but it differs from the latter because it is formed by three peaks instead of two, as shown below:<\/span><\/p>\n

\"Triple<\/p>\n

Being another top pattern, it develops during an uptrend and requires more time than the double top \u2013 we can consider the Triple Top a long-term pattern.<\/span><\/p>\n

This formation is made up of three similar peaks: the highs of these peaks form a strong resistance line, while the lows form the support. The high of the third and last peak should be the highest point reached by the price before an extended downtrend.\u00a0<\/span><\/p>\n

Pro tip<\/i><\/b>: In this article, we often make reference to the support and resistance lines and zones. They are useful tools that help traders understand the behavior of prices even before the development of chart patterns. More details can be found in this article on <\/span>support and resistance levels<\/span>.\u00a0<\/span><\/p>\n

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What to Do With Top Reversal Patterns and Final Thoughts<\/b><\/h2>\n

The patterns we have shown you are commonly seen and can be extremely useful as long as you take into account some considerations:<\/span><\/p>\n