Reversal Setups

These patterns are formed after the market has had an extended move up or down and the gold price reaches a strong resistance or support respectively.

When trading price reaches such a point it starts to form a pattern. Since these formations are frequently formed it is easy to spot them once you learn how and begin using them. There are four types:

• Double Tops
• Double Bottom
• Head & shoulders
• Reverse Head & shoulders

This learn xauusd tutorial will only cover double tops and bottoms, for the other 2, read this other tutorial: head & shoulders and reverse head & shoulders

Double Tops

This is a reversal xauusd setup which forms after an extended upwards gold trend. As its name implies, this pattern setup is made up of two consecutive peaks which are roughly equal, with a moderate trough between.

This formation is considered complete once gold price makes the second peak & then penetrates the lowest point between the highs, called the neckline. The sell signal from the formation forms when the market breaks-out below neckline.

In XAUUSD, this formation is used as an early warning signal that a bullish trend is about to reverse. However, it is only confirmed once the neck-line is broken and the market moves below the neck-line. Neckline is just another term for the last support level formed on the chart.

Summary:

• Forms after an extended move upward
• This formation indicates that there will be a reversal in market
• We sell when price breaks-out below neck-line point: see below for explanation.

The double top look like an M Shape, the best reversal signal is where the second top is lower than the first one as shown below, this means that the reversal can be confirmed by drawing a downward trend line as shown below. If a trader opens a sell signal the stop loss will be placed just above this down ward trend line.

M Shaped

Double Bottoms

This is a reversal xauusd setup which forms after an extended downward gold trend. It is made up of two consecutive troughs which are roughly equal, with a moderate peak between.

This formation is considered complete once gold trading price makes second low & then penetrates the highest point between lows, called the neckline. The buy indication from the bottoming out signal occurs when the market breaks-out the neck-line to the upside.

In XAUUSD, this formation is an early warning signal that the bearish trend is about to reverse. It's only considered complete/confirmed once the neck-line is broken. In this formation the neck-line is the resistance level for the gold price. Once this resistance is broken the market will move up.

Summary:

• Forms after an extended move downwards
• This formation indicates that there will be a reversal in market
• We buy when price breaks-out above neck-line point: see below for the explanation.

The double bottoms pattern look like a W Shape, the best reversal trading signal is where the second bottom is higher than the first one as displayed below, this means that the reversal can be confirmed by drawing an upward trend line as shown below. If a trader opens a buy signal the stop loss will be placed just below this upward trend line.

W Shaped