Reversal Crude Oil Trading Patterns
These patterns are formed after the crude oil market has had an extended move up or down and the crude oil price reaches a strong resistance or support respectively.
When crude oil 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 start using them. There are four types:
- Double Tops
- Double Bottoms
- Head and shoulders
- Reverse Head & shoulders
This learn oil trading 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 oil trading pattern that forms after an extended upwards oil trend. As its name implies, this pattern is made up of two consecutive peaks which are roughly equal, with a moderate trough between.
This formation is considered complete once crude oil price makes the second peak & then penetrates the lowest point between highs, called the neck line. The sell oil signal from this formation occurs when the crude oil market breaks-out below neck line.
In Oil Trading, this formation is used as a early warning trading signal that a bullish oil trend is about to reverse. However, it is only confirmed once the neckline is broken and the crude oil market moves below neck-line. Neckline is just another name for the last support level formed on the Oil Trading chart.
Summary:
- Forms after an extended move upward
- This formation indicates that there will be a reversal in crude oil market
- We sell when crude oil price breaks below the neck line: see below for explanation.
The double tops look like an M Shape, the best reversal oil 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 downwards oil trend line as shown below. If a trader opens a sell oil signal the stop loss will be placed just above this downward oil trend line.
M Shaped
Double Bottom
This is a reversal oil trading pattern that is formed after an extended downwards oil trend. It is made up of 2 consecutive troughs which are roughly equal, with a moderate peak between.
This formation is considered complete once crude oil price makes the second low and then penetrates the highest point between the lows, known as the neck line. The buy indication from this bottoming out signal occurs when crude oil market breaks-out the neckline to the upside.
In Oil Trading, this formation is an early warning trading signal that the bearish oil trend is about to reverse. It is only considered complete/completed once the neck line is broken. In this formation the neckline is the resistance level for the oil price. Once this resistance is broken the crude oil market will move up.
Summary:
- Forms after an extended move downwards
- This formation indicates that there will be a reversal in crude oil market
- We buy when oil price breaks above the neck line: see below for explanation.
The double bottoms pattern look like a W Shape, the best reversal oil trading signal is where the second bottoms is higher than the first one as displayed below, this means that the reversal can be confirmed by drawing an upward oil trend line as shown below. If a trader opens a buy oil signal the stop loss will be placed just below this upward oil trend line.
W Shaped
