Over the next several days, we will publish Minor Reversal Patterns, as published in John Hill’s book, Technical and Mathematical Analysis of Trends in the Commodity and Stock Markets.
The reversal patterns listed are based on only several days of action. They can be very useful when used in combination with the overall chart pattern and when used with other technical tools. I will emphasize that these factors or formations used by themselves can result in trouble and lead to whip saw action. Also, market action may not be exactly as shown. There may be several more days of movement. My intention is to introduce new concepts.
Pattern 1 : ISLAND
One of the strongest types that is seldom false. Island can be one day or many days. It represents a drastic change in sentiment and leaves one side trapped. The losing side will generally cover with on this day or on next reaction.
Pattern 2 : HEAD & SHOULDERS
The head and shoulders formation (in this case) represents a change in sentiment over a 3-4 day period. One side has lost control. Ideal or best case for trading is when the left shoulder has a narrow spread. The right shoulder should show an increase in volume and range and close outside the range of the left shoulder. It is also preferable if:
- Top – right shoulder top is below top of left shoulder.
- Bottom – right shoulder of bottom is above bottom of left shoulder.
Copyright 2015, John Hill & Futures Truth Company