Trend Reversals

A trend reversal marks the end of an existing trend and the beginning of a new one. Effectively spotting a reversal is the fastest way to jump on a new trade.

Reversals can happen in any time frame and can determine the difference between a big win, a break even, or a loss.

Defining a Trend

As previously established, a trend is the direction of successive tops and successive bottoms.

The Head and Shoulders Reversal Pattern

The Head and Shoulders (H&S) pattern is a popular reversal structure formed specifically at the end of an uptrend.

Components of the Head and Shoulders Pattern

The H&S pattern is composed of three primary tops and a critical support line:

  • The Head: The highest top formed during the pattern structure.
  • The Left Shoulder: The top located to the left of the head.
  • The Right Shoulder: The top located to the right of the head.
  • The Neckline: The line that connects the last two bottoms, which acts as a key support level.

Confirmation of the Reversal

The reversal pattern is confirmed when the price breaks below the neckline. This break marks the end of the existing uptrend and signals the beginning of a new downtrend.


Detailed Summary

A trend reversal signifies the termination of an existing trend and the initiation of a new one, offering the fastest opportunity to enter a new trade. Trends are defined by the direction of successive tops and bottoms. A popular and identifiable reversal structure is the Head and Shoulders (H&S) pattern, which forms specifically at the end of an uptrend. This pattern is confirmed, signaling the start of a downtrend, when the price breaks below the critical support level known as the neckline.

Key Takeaways

  • A trend reversal is the shift from an existing trend to a new one, crucial for timely trade entry.
  • Reversals can occur across any time frame and significantly impact trade outcomes.
  • A trend is defined by the direction of successive tops and bottoms.
  • The Head and Shoulders (H&S) pattern is a popular structure signaling the end of an uptrend.
  • The H&S pattern components include the Head (highest top), the Left Shoulder, and the Right Shoulder.
  • The Neckline is a critical support line connecting the last two bottoms in the H&S structure.
  • The trend reversal is confirmed when the price breaks below the neckline, signaling the transition from an uptrend to a downtrend.