What are stock market reversal patterns?
Stock market reversal patterns are technical indicators or stock patterns that signal a reversal pattern. When a stock is in a bullish market and positive trend, a reversal pattern generally give an early signal that the stock is near its peak and the trend is about to turn and become bearish soon. At this time, you should sell your stocks and protect your profit. On the other hand, if a stock is in a bearish trend and has been dropping for while, a reversal trend gives an early signal that the stock is about to turn positive and you should get in the trend before it is too late.
What are the best stock market reversal patterns?
There are a bunch of technical indicators and stock patterns that give reversal patterns. My favorite ones are Candlestick patterns, RSI and stochastic indicators.
Bullish Reversal Patterns
Let’s start with the bullish reversal patterns or stocks that you want to get in before the bull trend takes off.
Candlestick Bullish Reversal Patterns
Bullish Engulfing
Piercing Pattern
Bullish Harami
Hammer
Inverted Hammer
Morning Star
Bullish Abandoned Baby
Technical Indicator Bullish Reversal Patterns
You can use RSI and stochastic indicator and get a bullish signal when they rises from below the oversold area. For instance, when the stochastic crossover and move above the 20 level, it is consider a bullish signal.
Bearish Reversal Patterns
You should get out of a bull trend when you see the following bearish reversal patterns are forming.
Bearish Candlestick Reversal Patterns
The following candlestick patterns are very bearish and you should watch out during an uptrend.
Bearish Engulfing Pattern
Bearish Dark Cloud
Bearish Doji Star
Bearish Evening Star
Bearish Hanging Man>
Bearish Harami
Bearish Shooting Star
Technical Indicator Bearish Reversal Patterns
You can use RSI and stochastic indicator and get a bearish signal when they fall from the overbought area. For instance, when the stochastic cross down and move below the 80 level, it is consider a bearish signal and you should watch out for a down trend.
What are the risk in catching reversal patterns?
As a smart swing trader, you must set tight stop loss on reversal patterns. If a stock reversed and you get in early, you can get a really good profit, sometimes more than 100%. However, if the trend go against you, then you must cut loss quickly and get out of the broken pattern. Remember, there are always other stock that are forming these reversal patterns waiting for you and you must only focus on the ones that are working and not spend too much money hoping.
Stock market reversal patterns are somehow related to oversold and overbought patterns. If you would like to learn more about oversold and overbought, then click here to read my article on Oversold & Overbought technical indicators.
