Reversal formations are of several different type to make profit from reversal formation you need to know the basics of this formations So we will start with basic definitions and then go into the detail understanding of all the formations. Some of the examples of this formations are like head and shoulders, triangles, rectangle, wedge etc. We will learn about them all in detail.
What are Definition of Reversal Formations?
Stocks price move in trend. Sometime the trend is straight, sometime curve, sometime long sometime short. Some of these trends we can see clearly on chart and some are not that clear. You can see several type of trend in action when you study price chart of any stock.
Sooner or later this trends change direction this sometime start with a consolidation pattern and then there is change in trend. When his happens they form a pattern what we call a reversal pattern. This is indication that the trend is about to change it can be in any direction up or down. By use of reversal formations we can change our strategy accordingly.
As technical analysis we just have to follow trend. In this chapter you will learn how to spot this reversal formation and make changes to your portfolio accordingly. So that you can make profit out of the trend that is about to start.
How much Time is Required to Build a reversal formation
The time required to build reversal depends on time frame you are using. Like it will take hours in minute chart weeks in day chart and months in weekly chart. So there is no fix time that is required to form a reversal pattern.
We can understand reversal in trend by an analogy like when there is speeding car which is running at 90 km/h it will not stop instantly it will take some time. In same way when we’re is trend up or down it will take so time to reverse it.