Breaking the head: Market trend reversal indicators on the K-line chart

In the market, the K-line chart is not just a chart, it is the compass of traders, guiding the market trends. Most traders learn how to interpret K-line charts because they provide signals that precede market action, helping us make bullish or bearish decisions, thereby increasing the success rate of trading. There are many K-line forms, each with its own unique language and meaning. In order to allow candidates to have a deeper understanding and effectively use K-line analysis, EagleTrader will next take you to understand a special K-line form – “breaking the head”. What market signals does this form hide? How will it affect your trading decisions?

What is a piercing head?

Breaking the head is a pattern composed of two K-lines, which usually occurs at the end of an upward or downward trend. Specifically:

The positive line penetrates the head and breaks the feet: appears in an upward trend, and the second K-line is a long negative line, which completely covers the physical part of the previous positive line.

The negative line penetrates the head and breaks the feet: appears in the downward trend, and the second K-line is a long positive line, which completely covers the physical part of the previous negative line.

Model characteristics of piercing the head and breaking the feet

1. The first K-line: usually a medium-length positive or negative line, representing the current trend.

2. The second K-line: It must be a long negative line or a long positive line, and its opening price is higher or lower than the highest or lowest price of the first K-line, and its closing price is lower or higher than the lowest or highest price of the first K-line, forming a “swallowing” effect.

What does it mean to pierce your head and feet

The appearance of a head-wrenching pattern usually indicates a reversal or continuation of market trends:

Reversal signal: If it appears at the end of the upward trend, it means that the bulls’ strength weakens and the bears’ strength increases, and it may soon enter a downward trend.

Continuation signal: If it appears at the end of the downward trend, it means that the short power weakens and the long power increases, and it may soon enter an upward trend.

Practical application of piercing the head and feet

In actual transactions, the following points should be paid attention to to identify the shape of the head-breaking and broken feet:

1.Confirm the trend: First, we need to confirm whether the current market trend is rising or falling.

2. Observe the trading volume: Usually, the trading volume that occurs with the shape of the head and feet will change significantly, and the trading volume of the second K-line is often larger.

3. Set stop loss: After confirming the pattern, set a reasonable stop loss position to control the risk.

Suppose we observe the following in the EUR/USD transaction:

The first K-line is a positive line, indicating that the market is in an upward trend.

The second K-line is a long negative line, which completely covers the physical part of the previous positive line, and the trading volume has increased significantly.

In this case, we can judge that this is a positive line that breaks through the head, indicating that the upward trend may be about to reverse. It is recommended to adopt a short strategy and set a reasonable stop loss position.

The head-breaking and foot pattern is a powerful market signal that can help us identify the reversal or continuation of a trend. By carefully analyzing and applying this pattern, traders can better grasp market dynamics and make smarter trading decisions. Remember, technical analysis is not omnipotent, but it can become an important tool in your trading toolbox. EagleTrader encourages you to apply this knowledge to actual trading, constantly practice and learn to improve your trading skills and truly achieve long-term and stable profits.