The article will restrict itself to a more general presentation of trend reversal patterns. The most significant types of such category of patterns are:
- head-and-shoulders and inverse head-and-shoulders;
- double tops and double bottoms;
- triple tops and triple bottoms.
The neckline is studied within several points, out of which the first is called the starting point. Prior to the earlier mentioned one, the neckline is a resistance line. The breaking of a resistance line results in the emergence of a significant support line. The points that follow the starting one study and render the bounce movements of price. Under a heavy volume, the neckline is broken and, consequently, the trend reversal is confirmed. The retesting of the neckline is done by means of a retracement, with the condition that the support line is broken.
The head-and-shoulders formation is useful as it generates important signals for traders. One such formation provides the following information:
- the support line;
- the resistance line;
- the price direction;
- the price target.