V-shaped patterns (also known as spikes) are reversal structures having bullish and bearish types.
The bullish spike looks like the letter “V” at the bottom, and the bearish version is like (۸) at the top.
The v-shaped top starts with an uptrend in which, in the end, the slope becomes steeper. Then, the price reverses which generally is sharp. Finally, the pattern completes when it breaks the up trendline drawn earlier.
The v-shaped pattern bottom starts with a downtrend, in which the negative slope increases near the end of the trend. Next, the price reverses sharply upward. Finally, the pattern completes after a candle closes above the resistance down trendline.
Do not underestimate this pattern. It is one of the most underrated structures that form very often and is reliable. Moreover, rounding patterns take less time to develop than any other chart patterns (excluding candlestick patterns), such as double top and triple top.
How to Trade V-Shaped Patterns?
Because it takes less time to develop, trading spikes are easy.
First, look at the candles after the reversal and the candles that reverses the trend. A powerful reversal has large green candles (spike at the bottom) and large red candles (spike at the top). Simply, taller is better. Tall candles mean that volume is high and the counterattack may be powerful.
Next, generally, not always, a correction pattern forms after the reversal. So, it does worth waiting for it.
There are two places to enter the market. First, in a bullish v-shaped pattern, buy when the price closes above the resistance line if the new trend is very sharp. Second, wait for a bullish correction if the new uptrend is not sharp, and buy when the price breaks the resistance line of the bullish correction.
In a v-shaped pattern at the top, sell if the price closes below the support line with high volume (large red candle). And wait for a bearish consolidation if the new trend is not sharp enough.
Examples of V-Shaped Pattern
Alibaba Group Holdings Ltd stock chart made a v-shaped pattern top in early July. This reversal was signaled by the MACD indicator one month earlier.
The trend top started falling with a shooting star. The next day the price was sharp enough that made a gap-down.
Because the reversal was fast, selling after breaking the support line is a good idea. And the stop loss level could be at the top of the pattern.
Here is another example.
Alphabet Inc chart made a v-shaped pattern bottom in November of 2022.
This pattern made a bullish correction pattern. However, the resistance line of the consolidation is not broken yet. This pattern completes only if the price closes above the bullish correction pattern.
A v-shaped pattern is underestimated by most investors. However, it occurs frequently like the double bottom and top.
An investor should trade it if the reversal is very sharp or the chart makes a new correction pattern toward the new direction.