Reversal Trading Patterns

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

When xauusd trading 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 begin using them. There are four types:

• Double Top
• Double Bottom
• Head & shoulders
• Reverse Head & shoulders

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

Double Tops

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

This formation is considered complete once xauusd trading price makes the second peak & then penetrates the lowest point between the highs, known as the neck line. The sell signal from this formation occurs when the xauusd market breaks-out below the neckline.

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

Summary:

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

The double top look like an M Shape, the best reversal gold 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 downward gold trend line as shown below. If a trader opens a sell signal the stop loss will be placed just above this downwards trend line.

M Shaped

Double Bottom

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

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

In Gold, this formation is an early warning signal that the bearish gold trend is about to reverse. It is only considered complete/completed once the neck-line is broken. In this formation the neckline is the resistance level for the xauusd price. Once this resistance is broken the xauusd market will move up.

Summary:

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

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

W Shaped