Hook Reversal

What Is a Hook Reversal?

Hook reversals are short-term candlestick patterns that foresee a reversal in the trend's heading. The pattern happens when a candlestick has a higher low and a lower high than the previous session's candlestick. This pattern contrasts from engulfing patterns in that the size difference between the first and second bar's body can be generally small.

How a Hook Reversal Works

Hook reversal patterns are famous candlestick patterns among active traders since they happen reasonably regularly and are generally simple to spot since the subsequent candlestick changes to the contrary tone. The strength and unwavering quality of the pattern frequently relies upon the strength of the uptrend or downtrend that went before it, and most traders utilize other candlestick patterns, chart patterns, or technical indicators as confirmation of a reversal. All things considered, the pattern happens generally oftentimes, which prompts numerous false up-sides that must be discounted.

Hook reversal patterns are much of the time classified as a type of harami or engulfing on the grounds that the real body of the subsequent candle forms inside the body of the previous candle. They are likewise like dark cloud cover patterns where both real bodies are comparable length. The key difference is that hook reversal patterns just require a small size difference, while harami and engulfing patterns stress large differences in sizes between candlesticks. As a general rule, harami and engulfings will quite often be more uncommon and more accurate than hook reversal patterns in foreseeing a trend reversal.

Instances of Hook Reversals

Hook reversal patterns can be either bullish or bearish reversal patterns:

• Bearish hook reversals happen at the highest point of a uptrend when the open of the subsequent candle is close to the high of the primary candle and the close of the subsequent candle is close to the low of the principal candle. As such, bulls are in control of the market almost immediately before bears recapture control and send the price pointedly lower during the session.
• Bullish hook reversals happen at the lower part of a downtrend when the open of the subsequent candle is close to the low of the main candle and the close of the subsequent handle is close to the high of the primary candle. As such, bears are in control of the market right off the bat before bulls recover control and send the price forcefully higher during the session.

Traders ought to set take-profit and stop-loss points for these reversals in light of other technical indicators or chart patterns since hook reversals just show that a potential reversal is going to take place without giving knowledge into the size of the reversal.