What’s a hook reverse?
Hook reversals are short-term candlestick patterns that indicate a trend reversal. The pattern is characterized by a candlestick with a higher low and lower high than the preceding session. This pattern varies from engulfing patterns since the size difference between the first and second bar’s bodies might be minimal.
How Hook Reversals Work
Hook reversal patterns are common among traders due to their frequency and easy identification when the second candlestick changes color. The pattern’s strength and dependability depend on the preceding uptrend or downturn. Traders typically employ additional candlestick patterns, chart patterns, or technical indicators to corroborate reversals. After all, the pattern happens often, resulting in numerous false positives.
Hook reversal patterns, also known as harami or engulfing, occur when the second candle forms within the existing body of the prior candle. They also resemble dark cloud cover patterns with equal-length actual bodies. Hook reversal patterns require only a modest candlestick size difference, while harami and engulfing patterns favor high candlestick sizes. Harami and engulfing foretell trend reversals better than hooks and are less prevalent.
Examples of Hook Reversals
Hook reversals can be bullish or bearish.
When the opening and close of the second candle are around the high and low of the first candle, bearish hook reversals occur at the peak of an uptrend. Early on, bulls rule the market, but bears take over and bring the price dramatically lower over the day.
Bullish hook reversals occur at the bottom of a downtrend when the second candle open is near the first candle’s low and the second handle is around the first candle’s high. Early on, bears rule the market, but bulls take over and drive prices upward over the day.
Traders should establish take-profit and stop-loss settings based on other technical indicators or chart patterns, as hook reversals simply signal a prospective reversal.
Conclusion
- Brief candlestick patterns called hook reversals forecast reversal trends.
- A hook reversal occurs when a candlestick has a higher low and lower high than the prior session.
- Hook reversals differ from engulfing patterns in that the size difference between the first and second bar’s bodies might be minimal.
- Active traders like hook reversal patterns because they occur frequently and are easy to recognize.
