Stock Trading Chart - Reversal Patterns

Stock Trading Chart: Head and shoulders
A head and shoulders formations normally occurs at the end of a long price rise. This stock trading chart is characterized by a price high (shoulders) either side of a central higher point (head).

Price normally rises to a peak which forms the left shoulder. It then corrects before rising to form a higher peak before retracing.

This is the right shoulder.

Volume normally trend downwards with the highest volume on the left shoulder.

The first price target after a head and shoulders breakout is projected by measuring the distance between the top of head and the neckline and subtracting this from the price at the point where the neckline has been penetrated.


Stock Trading Chart: Inverted Head and Shoulders

Inverse or reverse head and shoulder formations often form at the end of a downtrend. The pattern is characterized by a low (shoulders) either side of a central lower point (head).

Price normally falls to a valley which forms the left shoulder. It then rallies before failing to form a lower valley. This is the head. The stock then rallies again, falls and forms a higher valley before retracing. This is the right shoulder.

Volume is normally highest on the left shoulder and lowest on the right. Prices normally break upward on high volume.

The first price target after a head and shoulders breakout is projected by measuring the distance between the bottom of the head and the neckline and adding this to the price at the point where the neckline has been penetrated.


Stock Trading Chart: Double Tops

A double stop is formed when price rises to but fails to penetrate, a previous high after a retreat from the high, and display an 'M' formation. The pattern is complete after the share price falls below the valley formed by the two highs. It becomes more valid as the time period between the peaks increases. An apparent double top which appears in a short timeframe is more likely a part of consolidation pattern.

The price target is projected from the penetration point by subtracting the distance from the peak to the valley.


Stock Trading Chart: Double Bottoms

Double bottoms usually occur at the end of downtrends. They are a mirror image of a double top, and display a 'W' pattern.

The price target is projected from the breakout from the peak between the valleys by adding the price difference between the peak to the valley.

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