Analysis of Top and Bottom Reversal Patterns

In the Chande theory, "fractal" is an important concept in technical analysis, divided into top fractals and bottom fractals. The two are key signals for determining price trend reversals and should be analyzed in conjunction with the "inclusion relationship" processing rules.

1. Basic Definitions and Market Significance

- Top Reversal Pattern: Usually regarded as a warning signal that the stock price has reached its peak. When a top reversal pattern appears, the stock price may enter a downward channel.
- Bottom Divergence: Generally regarded as a signal that the stock price has reached a bottom. When a bottom divergence appears, the stock price may begin an upward trend.

Intensity Effect:
The higher the strength of a top formation, the greater the potential decline in stock prices that may follow; the higher the strength of a bottom formation, the stronger the potential upward momentum in stock prices that may follow.

2. Rules for Handling Containment Relationships

When analyzing fractals, it is necessary to first address the "inclusion relationship" between the candlesticks:

- When the high and low points of one candlestick are completely within the high and low points of another candlestick, it forms a containment relationship.
- In an uptrend: When merging two candlesticks, use the highest point of both as the new high point and the higher of the two low points as the new low point.
- In a downtrend: when merging two candlesticks, use the lowest point of both as the new low, and the lower high of the two as the new high.

By merging processing, the shapes of top formations or bottom formations can be identified more clearly.

3. Morphological characteristics (simplified diagram)

- Top split pattern: Composed of three consecutive candlesticks, where the high of the middle candlestick is higher than the highs of the two side candlesticks, forming a "higher middle, lower sides" shape (e.g., combinations like bearish-bullish-bearish, bullish-bullish-bearish, etc., with the core being that the middle candlestick is a local high).
- Bottom Formation: Composed of three consecutive candlesticks, where the low of the middle candlestick is lower than the lows of the two side candlesticks, forming a pattern of "lower middle, higher sides" (e.g., bullish-bearish-bullish, bearish-bearish-bullish combinations, with the core being that the middle candlestick is a local low). #BTC #ETH