We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Mixed
Oil - US Crude
Mixed
Wall Street
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Mixed
GBP/USD
Mixed
USD/JPY
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • LIVE NOW: In this session, Strategist @DavidJSong will discuss trading strategies for the top event risk in the week ahead https://www.dailyfx.com/webinars/175202251
  • LIVE IN 30 MIN: In this session, Strategist @DavidJSong will discuss trading strategies for the top event risk in the week ahead https://www.dailyfx.com/webinars/175202251
  • The possibility of a Covid-19 cure by year end keeps market sentiment high despite ongoing political tensions. Get your $USDMXN market update from @HathornSabin here: https://t.co/6DIf6krA3E https://t.co/IxeRbjHpQm
  • Join analyst @DavidJSong at 6:30 PM ET/10:30 PM GMT for your weekly update on key news trading events. Register here: https://t.co/gBlrRpCc55 https://t.co/qqWZkK1G8B
  • The commodity currencies, AUD, CAD, and NZD, which typically benefit from their higher yield profile relative to other currencies (the carry trade), no longer hold this advantage. Get your #currencies market update from @CVecchioFX here: https://t.co/3oWXhp0hCX https://t.co/qOgXnf0JKK
  • The long-term outlook for the Euro has been boosted significantly by a Franco-German proposal for a €500 billion coronavirus Recovery Fund, even though an agreement is not yet close. Get your $EURUSD market update from @MartinSEssex here: https://t.co/onP43pXuDi https://t.co/nynDJ9P6br
  • On Friday, EUR/GBP surged to an over six-week high at 0.8940 then closed the weekly candlestick in the green with a 2.3% gain. Get your $EURGBP market update from @malkudsi here: https://t.co/ln09Ijn7rd https://t.co/OCe7fzGGC0
  • The Canadian Dollar has proven stable in recent weeks following a dramatic turn lower in March, guided to the downside by energy markets. Get your $USDCAD market update from @CVecchioFX here: https://t.co/7tlrn74X3t https://t.co/OGqZzWaxU4
  • As political tensions between the US and China increase, $gld is picking up a safe-haven bid ahead of the long weekend and may look to press higher. Get your $XAUUSD market update from @nickcawley1 here: https://t.co/boUn4vyfCO https://t.co/sVtnBALhw7
  • Both WTI and Brent crude futures have conformed to the negative risk tone, however, investors will be eying the latest Baker Huges rig count for another drop in #oil rigs. Get your market update on currencies, commodities & stocks from @JMcQueenFX here: https://t.co/G6CEBzNXVA https://t.co/gosmDwkKSX
Reversal Patterns: Don't Miss a Key Reversal Day, or Week, on the Charts

Reversal Patterns: Don't Miss a Key Reversal Day, or Week, on the Charts

2018-04-27 13:35:00
Martin Essex, MSTA, Analyst
Share:

Talking points:

- GBPUSD has tumbled this week, with fundamental analysts pointing to Friday’s poor UK first-quarter economic growth data as an important contributor.

- However, technical analysts should have seen it coming after a key reversal week on the chart: one of the most impoortant reversal patterns.

- That shows how useful it is to look out for this important indicator of a trend change.

Check out the IG Client Sentiment data to help you trade profitably.

Why reversal patterns matter

There was a perfect example this week of why a key reversal day, or a key reversal week, can be an important pointer to a change in trend. For those new to technical analysis, this occurs when:

  • In an uptrend, the price hits a new high but then closes near the previous day’s (or week’s) lows
  • In a downtrend, the price hits a new low but then closes near the previous day’s (or week’s) highs
  • Ideally, in an uptrend, the price should also open above the previous day’s (or week’s) close
  • In a downtrend, the price should open below the previous day’s (or week’s) close

Take a look at the weekly chart below of GBPUSD. After an uptrend that began in early October 2016, there was a sharp fall in the week that began on April 16, 2018. The price hit a new high for the uptrend but ended the week lower than the week before, although the open was exactly in line with the previous week’s close.

As was to have been expected, there was then another sharp fall the following week – a development I wrote about here, when I recommended selling the pair.

GBPUSD Price Chart, Weekly Timeframe (September 2016 – April 2018)

Weekly trading chart showing a key reversal week - one of the main reversal patterns.

Chart by IG

Throughout that following week, the pair continued to fall, with economists blaming the particularly sharp drop on Friday to very disappointing UK growth data for the first three months of the year. However, that should have been no surprise to chart-watchers.

GBPUSD Price Chart, Daily Timeframe (January 1 – April 27, 2018)

Daily chart showing reversal patterns.

Chart by IG

Unlike some technical analysts, I do not believe that this discipline offers all the answers – it’s important to watch economic developments, geopolitics and sentiment indicators too. However, in this case, it certainly proved its worth.

Resources to help you trade the forex markets

Whether you are a new or an experienced trader, at DailyFX we have many resources to help you: analytical and educational webinars hosted several times per day, trading guides to help you improve your trading performance, and one specifically for those who are new to forex. You can learn how to trade like an expert by reading our guide to the Traits of Successful Traders.

--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.