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What is a Hook Reversal?


Sam Button

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The ‘Hook Reversal’ candlestick pattern denotes a trend reversal. It occurs frequently, is easy to identify and given the right support from other signals can be relatively reliable. Use of the Hook Reversal should, however, be guided by caution. Strategies built to trade it need to be thoroughly tested either using backtesting programs or demo accounts, and in the markets where the strategy is going to actually trade. Hook Reversals can be bearish or bullish. The Bullish version occurs when a downward trending market experiences the below candlestick pattern: Market data indicates that the reliability of the signal improves when the initial downtrend has been short term in nature. The pattern is made up of two candles. Candlestick 1, bearish, relatively long main body with close near to the low of the day. Candlestick 2, bullish, main body engulfed by main body of candlestick 1. Open of the time interval near previous intervals close; close of the interval close to the open of the previous candlestick. What we are seeing here is a distinct switch from bearish to bullish conditions within two-time intervals. It’s the sudden switch from one direction to the other that makes this candlestick easy to identify as the color changes to denote that in candlestick 2 the bulls have built up buying pressure and controlled the trading. The volume traded during candlestick 2 is a key supporting indicator. Whilst Candlestick 1 and 2 look similar in shape and size, if the volumes during time period 2 are significantly higher that supports the new bullish signal. In short, a wide range of participants took part in the decision and the bullish outcome is therefore stronger. The Bearish Hook Reversal is essentially the same pattern but the other way around. Again candlestick 2 is engulfed and is catching the eye due to the change in color.
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Hi Sam,

 

Hook Reversal refers to a candlestick pattern that indicates a trend reversal. This pattern takes shape once it reaches a higher low and a lower high compared to a previous candlestick. 

Traders can easily identify a hook reversal pattern as the second candlestick changes color and it’s a very common pattern among traders. The reliability of a hook reversal is relative to the strength of a trend that came before the pattern and that’s why traders use other patterns and indicators to confirm the hook reversal pattern. 

A hook reversal pattern can be spotted in both bullish and bearish markets. In case of a bearish market, this pattern takes shape at the top of an uptrend, while in a bullish market the pattern is created at the bottom of a downtrend.

Usually, traders place take-profit and stop-loss orders for the reversal because the hook reversal pattern alone can’t tell you how big the reversal will be.

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Hello,

This is a candlestick pattern which can be found in bar charts. It is possible to spot a hook reversal regardless of market direction.

A bullish hook reversal forms when the market is in a downtrend and is about to change direction. On the other hand, a bearish hook reversal takes form in an uptrend where there’s a possibility of a bearish reversal. 

As for its formation, the hook reversal is formed by two bars/candlesticks. In case of a bullish hook reversal, it is formed when a candle takes shape inside the range of a previous candle following a downtrend. Similarly, bearish hook reversal occurs once a candle takes form in the range of a previous bar. It occurs after an uptrend when there’s a lower high and a higher low in relation to the previous candle

The most common way to trade a hook reversal pattern with a trend line or support/resistance, but of course, there are a number of other ways in which the pattern can be traded.

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Hi Sam, and thanks for asking.

A hook reversal is a candlestick pattern that demonstrates a trend swing and may serve as a prompt to join or leave a position if combined with other technical signals.

Bullish Hook Reversal

Occurring in a downtrend, it features two candlesticks with the second one being within the first’s trading range. The second candle should include a lower peak and higher base than the first.

The fact that it starts with a descent proves bears are in control until a reversal occurs. The bullish takeover is shown by the second candle’s low being higher and its high being lower than the preceding one. An uptrend follows the bulls’ dominance.

Bearish Hook Reversal

This short-to-medium illustration forms during an uptrend. It’s characterized by two candlesticks with the second candle being in the first one’s range. The second candle should display a lower peak and a higher bottom than the first.

The opening ascent indicates bullish dominance. However, a reversal is initiated at the trend’s brief peak. The arrangement of the second candle’s highs and lows relative to the first’s tells you bears are in charge, hence, the downtrend.

 

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