Definition
A reversal pattern is a concept in technical analysis where the shape and behavior of price movements on a chart indicate that an existing trend may be about to change direction. It signals that a period of rising or falling prices could be losing strength and might soon turn the opposite way. Reversal patterns are used to interpret shifts in buying and selling pressure without relying on fundamental data.
In the context of a Bull Market, a reversal pattern may suggest that strong upward price momentum is weakening and could transition into sideways or downward movement. In a Bear Market, a reversal pattern may indicate that persistent price declines are slowing and that a potential recovery or new uptrend could emerge. These patterns are closely tied to changes in Market Sentiment, reflecting how optimistic or pessimistic participants are about future prices.
Context and Usage
Reversal patterns are typically identified on price charts over different time frames, from short-term intraday movements to longer-term market cycles. They are considered signals of a possible turning point rather than guarantees, and are often evaluated alongside volume and other indicators. The idea is that as sentiment shifts, the balance between buyers and sellers changes, and this transition leaves recognizable shapes in the price history.
Because they are linked to the broader direction of markets, reversal patterns are especially relevant when traders are watching for the end of a Bull Market or Bear Market. They help frame expectations about whether a dominant trend is likely to continue or give way to a new phase. In this way, reversal patterns serve as a visual expression of evolving Market Sentiment within trading environments, including crypto markets.