The Handbook of Technical Analysis + Test Bank_ The Practitioner\'s Comprehensive Guide to Technical Analysis ( PDFDrive )

THE HAnDbook of TEcHnIcAl AnAlysIs

There are basically three types of reversal formations that will signal a change
in the direction of the existing or predominant trend, namely:

1. Failure swings


2. Non‐failure swings


3. Double tops/bottoms

The term failure swing was first used by Welles Wilder in his book, New
Concepts in Technical Trading Systems, when describing the oscillator swings
on the relative strength index (RSI) indicator. The three basic top reversal for-
mations are illustrated in Figure 2.18. A breach of a prior support signals a

fIgure 2.16 A Real World Example of the Three Phases of a Primary Bull Trend.

fIgure 2.17 Primary Bull Trend Terminated with a Violation of a Prior Support Level.
Source: MetaTrader 4