Change is the law of life. And those who look only to the past or the present are certain to miss the future.
– John F. Kennedy
What is the Reversal Candlestick Patterns?
Reversal patterns mean the formation of candlesticks which indicate the end of the existing trend (uptrend or downtrend). When such formation appears in a downtrend, it indicates a bullish reversal or end of selling spree and onset of buying spell. Steve Nison, the man who has who has created the popularity of candlestick patterns to the western world, has mentioned seven reversal patterns that are more influential than others. In his book Japanese Candlestick Charting Techniques, he mentioned a few distinct reversal patterns.
The Most Important Reversal Pattern:
Head and Shoulders & Inverse Head and Shoulders. Double Tops and Bottoms.
Below are the some example of Reversal Candlestick Patterns:
- Long Days
The long day represents a large price move from open to close. Long represents the length of the candle body. What qualifies a candle body to be considered long? That is a question that has to be answered related to the chart being analyzed. The recent price action of a stock determines Whether a long candle has been formed. Analysis of the previous two or three weeks of trading should be a current representative sample of the price action.
- Short Days
Short days can be interpreted by the same analytical process as used with the long candles. There is a large percentage of tradingdays that do not fall into either of these two categories.
- Black Marubozu
The long black body with no shadows at either end is known as a Black Marubozu. It is considered a weak indicator. It is oftenidentified in a bearish continuation or bullish reversal pattern, especially ifit occurs during a downtrend. A long black candle could represent the final sell-off, making it an alert to a bullish reversal setting up. The Japanese often call it the Major Yin or Marubozu of Yin.
- White Marubozu
The White Marubozu (shown in Figure 2.5) is a long white body with noshadows on either end. This is an extremely strong pattern. Consider howit is formed. It opens on the low and immediately heads up. It continues upward until it closes, on its high. Counter to the Black Marubozu, it is oftenthe first part of a bullish continuation pattern or bearish reversal pattern. Itis called a Major Yang or Marubozu of Yang.
- Closing Marubozu
The Closing Marubozu has no shadow at its closing end. A white body does not have a shadow at the top. A black body doesnot have a shadow at the bottom. In both cases, these are strong signals correspondingto the direction that they each represent.
- Opening Marubozu
The Opening Marubozu has no shadows extending from the open price end of the body. A white body would not have a shadow at the bottom end; the black candle would not have a shadow at its top end. Though these are strong signals, they are not as strong as the Closing Marubozu.
