Reversal Oil Trading Chart Setups

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

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

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

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

Double Tops

This is a reversal oil setup which forms after an extended upwards trend. As its name implies, this formation is made up of 2 consecutive peaks which are roughly equal, with a moderate trough between.

This formation is considered complete once price makes the second peak & then penetrates lowest point between highs, known as neck-line. Sell oil signal from this formation occurs when the oil market breaks-out below neckline.

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

Summary:

• Forms after an extended move upward
• This formation indicates that there will be a reversal in the market
• We sell when price breaks below the neck line point: 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 pictured below, this means that the reversal can be confirmed by drawing a down-wards oil trend line as shown below. If one opens a sell oil signal the stop loss will be placed just above this downward trend line.

M Shaped

Double Bottoms

This is a reversal oil setup which forms after an extended downwards 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 trading price makes second low and then penetrates highest point between the lows, known as the neck-line. The buy indication from this bottoming out signal occurs when market breaks-out the neck-line to the upside.

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

Summary:

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

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

W Shaped