Yard Charts Technical Analysis Software: Top Reversal Pattern
Pattern Overview
The Top Reversal is a bearish trend inversion pattern identified by YardCharts at market lows:
- Initial Uptrend: The market exhibits a clear upward trend (Segment 1, Picture A).
- Trading Range: A pause in the rise forms a trading range (Range, Picture A).
- False Breakout: The market appears to continue the uptrend with a break above the range (Down Break, Picture A).
- Reversal: Immediately after the breakout, the market reverses sharply, closing below the trading range's lower boundary (Reversal, Picture A).
Trading Strategy
- Entry Point: The bearish trade entry or long position close is when the price closes below the lower limit of the trading range.
- Velocity Consideration: The speed of the rise to the new high should be slower or equal to the speed of the subsequent decline back below the range's lower band, with an equal or greater number of bars in the rise than in the descent.
Risk Management
- A stop loss should be set above the upper boundary of the trading range or, for a tighter risk control, just above the recent high.
- Pattern failure is indicated if the price rises above the upper band of the range or the recent high.
Performance
YardCharts has successfully identified three TopReversal patterns where, post-entry, the stock price decreased by at least three times the height of the trading range without hitting the stop loss above the range's upper band.
