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However, a lot of novice traders neglect one of the most important indicators and oscillators out there –
price! The price gives you the full picture of the market, factoring in economic, political and geographic
variables. A lot of traders who are just starting out find it hard to use the price as an indicator because
they don’t have the experience, so they usually cast it aside and put less weight on it. The truth is, price
is the greatest indicator – everything else comes second.
As far as the best market entry point goes, most experienced traders already know that it’s the trend
reversal. This is the point at which a dominating trend reverses course, signalling a shi in the opposite
direction. While forex trading (/education/fx-trading) is filled with reversal patterns, for the purposes of
this article, I will be discussing three types.
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5. An imminent reversal is signalled when the right shoulder is greater than the previous bottom (or the
head).
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6. Where available, increased volume – associated with a decisive close above the neckline – indicates the
end of a downtrend and the start of an uptrend.
7. By projecting the elevation of the inverse head and shoulders pattern to the breakout on the neckline,
(/) the minimum price target can be calculated.
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Similar to the previous reversal pattern, triple bottoms indicate that a downtrend is ending and an
uptrend is beginning. Three equal, or nearly equal, bottoms make up this price pattern – together with
a definitive close above the resistance (the top) of the formation. It is imperative that prices break over
the top of this pattern; otherwise it’s not a triple bottom reversal.
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A downtrend will be in full force, as long as there is a succession of lower tops and lower bottoms
reflected in the price action. In this scenario, supply overcomes demand and negative sentiment
pushes the prices down to lower levels. Where available, volume would indicate the first sign of
weakness if it decreases on its way down. A second warning is signalled when the last bottom fails to
move lower than the preceding one. Once the price breaks over the resistance level with increased
volume (where available), the double bottom reversal pattern is complete.
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In Conclusion
There are multiple varieties of bullish trend reversals. Many traders, especially novices, tend to
experiment with candlestick reversal patterns and oscillator signals, but they seldom explore reversal
patterns that are dictated by price. In reality, price is boss and second to none. Price charts incorporate
all external factors, including political, economic and environmental data.
Through price, one understands the psychology of the market and its participants. Thus, reversals with
a high probability, are directly based on price patterns that are quickly spotted on the chart. For even
better accuracy (and where available), volume – together with oscillator analysis – may be used as
further confirmation of reversal patterns.
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