Reversal CFDs Setup Patterns

These patterns are formed after the cfd market has had an extended move up or down and the price reaches a strong resistance or support respectively.

When price reaches such a point it starts to form a pattern. Since these formations are frequently formed it is easy to spot them once you learn how and start using them. There are four types:

• Double Tops
• Double Bottoms
• Head & shoulders
• Reverse Head and shoulders

This learn cfd tutorial will only cover double tops and bottoms, for the other 2, read this other tutorial: head and shoulders and reverse head and shoulders

Double Tops

This is a reversal cfd pattern that forms after an extended upwards cfds trend. As its name implies, this formation is made up of 2 consecutive peaks which are roughly equal, with a moderate trough between.

This formation is considered complete once price makes the second peak and then penetrates the lowest point between the highs, called the neck-line. The sell cfd signal from this formation occurs when the cfd market breaks-out below neck line.

In CFD, this formation is used as an early warning signal that a bullish cfd trend is about to reverse. However, it is only confirmed once the neck-line is broken and the cfd market moves below the neck-line. Neckline is just another term for last support level formed on the CFD chart.

Summary:

• Forms after an extended move upward
• This formation indicates that there will be a reversal in trading market
• We sell when price breaks below the neckline point: see below for explanation.

The double tops look like an M-Shape, the best reversal cfd signal is where the second top is lower than the first one as shown below, this means that the reversal can be confirmed by drawing a downwards trend-line as shown below. If one opens a sell cfd signal the stop loss will be placed just above this downward trend line.

M-Shaped

Double Bottom

This is a reversal cfd pattern setup that forms after an extended downward cfds trend. It is made up of 2 consecutive troughs which are roughly equal, with a moderate peak between.

This formation is considered complete once price makes the second low & then penetrates the highest point between the lows, called the neck-line. The buy indication from this bottoming out signal occurs when cfd market breaks-out the neck-line to the upside.

In CFD, this formation is an early warning trading signal that the bearish cfd trend is about to reverse. It's only considered complete/confirmed once the neck-line is broken. In this formation the neck-line is the resistance level for the price. Once this resistance is broken the cfd market will move up.

Summary:

• Forms after an extended move downwards
• This formation indicates that there will be a reversal in trading market
• We buy when price breaks above the neckline point: see below for explanation.

The double bottoms pattern look like a W-Shape, the best reversal cfd signal is where the second bottom is higher than the first one as displayed below, this means that the reversal can be confirmed by drawing an upward trend-line as shown below. If a trader opens a buy cfd signal the stop loss will be placed just below this upward trend line.

W-Shaped