CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

3 Common Technical Formations

Related subjects:
Reading time: 3 minute(s)
Technical analysis is widely used by investors and traders all over the globe. There are many technical formations and indicators, but it’s worth starting with the basics because their simplicity could be their strength.

Technical analysis is widely used by investors and traders all over the globe. There are many technical formations and indicators, but it’s worth starting with the basics because their simplicity could be their strength.

Formations can be divided into reversal patterns and continuation patterns. In this article, we present two reversal patterns and one continuation. All three patterns can be used across forex, indices, or commodities.

Double Bottom/Double Top

Double bottom/top is one of the best-known reversal patterns. It is simple but powerful - there is a second low in the double bottom that doesn’t go lower or a second high in a double top that does not go higher.

When this pattern forms, it indicates fatigue in the trend and signals that a reversal could be more likely. The double bottom resembles the letter W, while the double top letter resembles an M. If the top of a W or bottom of an M is broken by the price, the trend can be reversed. It is normally assumed that a range of future price movement is at least equal to the height of W or M.

In this case, the range of formation far exceeded the height of M, and the formation actually marked the start of the new trend. Source: xStation5
Please be aware that the presented data refers to the past performance data and such is not a reliable indicator of future performance.

Head and Shoulders

The head and shoulders pattern is similar to the double top as in both situations the buyers are unable to push prices to the higher high, and this heralds a trend reversal. In this case, highs 1 and 3 are lower and are called shoulders; while the high 2 is at the top of the trend and is called the head.

Highs 1 and 3 should be at a similar level. Lows between highs are just as important as they should be around the same level too. These lows create a neckline that plays a fundamental part. Once price breaks through the neckline, it triggers the formation. The textbook range is the distance between the neckline and the head. There is also a reverse head and shoulders formation that marks a reverse of a downward trend - it works exactly in the same way, just in the opposite direction.

Head and shoulders formation on the EURSEK. One can see that it worked in a textbook fashion. Please be aware that the presented data refers to the past performance data, and as such is not a reliable indicator of future performance. Source: xStation5

Wedge

Unlike the previous two, the wedge is a continuation pattern. The wedge itself is a form of price correction following a rapid impulse move. Price amplitude declines within the wedge and when it breaks out of it, another impulse move - in the same direction to the first one - should take place. We can distinguish a downward wedge that separates upward impulses and an upward wedge that separates downward impulses. The idea here is that a declining volatility within the wedge shows lack of interest among market participants to pursue the direction of the wedge and eventually the original trend is resumed.

A downward wedge on BRAComp was just a correction between the two price rallies. Please be aware that the presented data refers to the past performance data and such is not a reliable indicator of future performance. Source: xStation5

This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

Xtb logo

Join over 935 000 investors from around the world

We use cookies

By clicking “Accept All”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts.

This group contains cookies that are necessary for our websites to work. They take part in functionalities like language preferences, traffic distribution or keeping user session. They cannot be disabled.

Cookie name
Description
SERVERID
userBranchSymbol cc 2 March 2024
adobe_unique_id cc 1 March 2025
test_cookie cc 1 March 2024
SESSID cc 9 September 2022
__hssc cc 1 March 2024
__cf_bm cc 1 March 2024
intercom-id-iojaybix cc 26 November 2024
intercom-session-iojaybix cc 8 March 2024

We use tools that let us analyze the usage of our page. Such data lets us improve the user experience of our web service.

Cookie name
Description
_gid cc 9 September 2022
_gat_UA-22576382-1 cc 8 September 2022
_gat_UA-121192761-1 cc 8 September 2022
_ga_CBPL72L2EC cc 1 March 2026
_ga cc 1 March 2026
AnalyticsSyncHistory cc 8 October 2022
af_id cc 31 March 2025
afUserId cc 1 March 2026
af_id cc 1 March 2026
AF_SYNC cc 8 March 2024
__hstc cc 28 August 2024
__hssrc

This group of cookies is used to show you ads of topics that you are interested in. It also lets us monitor our marketing activities, it helps to measure the performance of our ads.

Cookie name
Description
MUID cc 26 March 2025
_omappvp cc 11 February 2035
_omappvs cc 1 March 2024
_uetsid cc 2 March 2024
_uetvid cc 26 March 2025
_fbp cc 30 May 2024
fr cc 7 December 2022
muc_ads cc 7 September 2024
lang
_ttp cc 26 March 2025
_tt_enable_cookie cc 26 March 2025
_ttp cc 26 March 2025
hubspotutk cc 28 August 2024

Cookies from this group store your preferences you gave while using the site, so that they will already be here when you visit the page after some time.

Cookie name
Description
personalization_id cc 7 September 2024
UserMatchHistory cc 8 October 2022
bcookie cc 8 September 2023
lidc cc 9 September 2022
lang
bscookie cc 8 September 2023
li_gc cc 7 March 2023

This page uses cookies. Cookies are files stored in your browser and are used by most websites to help personalise your web experience. For more information see our Privacy Policy You can manage cookies by clicking "Settings". If you agree to our use of cookies, click "Accept all".

Change region and language
Country of residence
Language