In technical analysis, any pattern on a chart that indicates a previous trend is changing to a new trend. Generally speaking, any trend in which the highs are lower than the previous highs is a bearish reversal pattern, while any trend in which the lows are higher than the previous lows is bullish. However, some reversal patterns are more complex. Examples include a head-and-shoulders pattern and an outside reversal.
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In technical analysis, a chart formation that indicates a market top or a market bottom. A reversal pattern, which usually occurs after a major movement in the price of a stock or in the entire market, is an indication that investors should adjust their positions to take advantage of the coming change in market direction. A saucer and a head-and-shoulders are reversal patterns.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.