Change Of Trend

Let’s take a look at the only 6 possible change of trend price action patterns.

Since these patterns will never change, I quickly created a schema sheet for you, relying exclusively on my brain and top Microsoft Paint skills… 😉

But seriously, there’s no need to introduce unnecessary complexity here.

No matter

  • what kind of financial markets you trade,
  • what your chart or indicators look like,
  • what other chart patterns you know,
  • what candlestick patterns you recognize,

these are the only 6 patterns to safely and quickly spot a change of trend.

Let’s dive in.

The 6 Fundamental Change Of Trend Price Action Patterns

Change Of Trend Patterns

Let’s take a look at each pattern, one by one, beginning with the 3 patterns on the left side (bullish to bearish trend change).

Bullish To Bearish Trend Change

Pattern 1 - Double Top, Lower Low

Pattern 1 - Double Top, Lower Low

The price is making higher highs, followed by higher lows. (we’re in an uptrend)

At one point, the market is not able to make a higher high.

Instead, the market shows a double top.

Price turns down again and breaches the most recent low.

At this point, we don’t have “higher highs and higher lows” anymore. Hence, the uptrend is broken.

Technically speaking, we’re in no-mans-land now.

All we see is a broken uptrend.

What often follows, is a lower high, followed by a lower low.

Now we’re in a downtrend.

This completes pattern 1.

Pattern 2 - Lower High, Lower Low

Pattern 2 - Lower High, Lower Low

The price is making higher highs, followed by higher lows. (we’re in an uptrend)

At one point, the market is not able to make a higher high.

Instead, the market shows a lower high.

Price turns down again and breaches the most recent low.

The uptrend is broken, the market has reversed it’s trend and we are in a downtrend now.

What often follows, is a lower high, followed by a lower low.

This completes pattern 2.

Pattern 3 - Powerful Action, Lower Low

Pattern 3 - Powerful Action, Lower Low

The price is making higher highs, followed by higher lows. (we’re in an uptrend)

After showing a new high, the market suddenly falls sharply and breaks the most recent low.

This move happens very sharp and catches market participants by surprise.

Often, the decline in prices even breaks the second-recent low.

The uptrend is clearly broken.

And while technically speaking, we’re in no-mans-land now, we can expect a lower high at one point.

What often follows, is a lower high and a lower low, starting a new downtrend.

This completes pattern 3.

Now we’re looking at the 3 bearish to bullish change of trend patterns.

Pattern 4 - Double Bottom, Higher High

Pattern 4 - Double Bottom, Higher High

Basically speaking, we’re (vertically-)mirroring pattern number 1.

The price is making lower highs, followed by lower lows. (we’re in a downtrend)

At one point, the market is not able to make a lower low.

Instead, the market shows a double bottom.

Price turns up again and breaches the most recent high.

At this point, we don’t have “lower highs and lower lows” anymore. Hence, the downtrend is broken.

Technically speaking, we’re in no-mans-land now.

All we see is a broken downtrend.

What often follows, is a higher high, followed by a higher low.

Now we’re in an uptrend.

This completes pattern 4.

Pattern 5 - Highler Low, Higher High

Pattern 5 - Highler Low, Higher High

Basically speaking, we’re (vertically-)mirroring pattern number 2.

The price is making lower highs, followed by lower lows. (we’re in a downtrend)

At one point, the market is not able to make a lower low.

Instead, the market shows a higher low.

Price turns up again and breaches the most recent high.

The downtrend is broken, the market has reversed it’s trend and we are in an uptrend now.

What often follows, is a higher low, followed by a higher high.

This completes pattern 5.

Let’s look at the final change of trend price action pattern:

Pattern 6 - Powerful Action, Higher High

Pattern 6 - Powerful Action, Higher High

Basically speaking, we’re (vertically-)mirroring pattern number 3.

The price is making lower lows, followed by lower highs. (we’re in a downtrend)

After showing a new low, the market suddenly rises sharply and breaks the most recent high.

This move happens very sharp and catches market participants by surprise.

Often, the increase in prices even breaks the second-recent high.

The downtrend is clearly broken.

And while technically speaking, we’re in no-mans-land now, we can expect a higher low at one point.

What often follows, is a higher low and a higher high, starting a new uptrend.

This completes pattern 6.

Should I Trade All Of These Patterns?

Hell, no!

Oftentimes, when strong trends are broken, we see a period of sideways price action. (no real edge here from my perspective)

Much more important is what actually happens on the higher time frame.

What I’m talking about is the big picture.

If the trend on the next higher time frame is bullish, I like to trade change of trend patterns that turn (back) into the direction of the higher time frame.

I’ll add a few examples soon.

Final Thoughts

Now you’ve seen all 6 change of trend price action patterns you ever need to internalize.

With a little bit of experience, you’ll be able to spot changes in trends quickly and safely.

Combine this knowledge with the context of what’s happing in the big picture, and you’re in a good spot.

But remember:

An edge is nothing more than an indication of a higher probability of one thing happening over another.
- Mark Douglas

In the end, it’s all about accepting losses, risk management and self-control.

The ol’ man was damn right.

Thanks for reading and plenty of great trades,

Tim for ITradeNaked.com

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