Reversal Patterns

A reversal pattern is a consolidation zone that serves as a rest stop when the trend is changing. Bulls and bears reevaluate as before but this time, perceptions of value change, and the group that was more aggressive before the pattern becomes the less aggressive group going out. How can one tell a reversal pattern from a continuation pattern as they are forming? The shape and position within the trend can yield more clues. However, the bottom line is to wait for the market to indicate by breaking out higher or lower.

This is covered in detail in Chapter 10, “Chart Patterns—When the Market Is Changing Its Mind.”

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