{"id":12862,"date":"2022-03-04T12:03:55","date_gmt":"2022-03-04T06:33:55","guid":{"rendered":"https:\/\/flattrade.in\/kosh\/?p=12862"},"modified":"2022-03-04T12:12:31","modified_gmt":"2022-03-04T06:42:31","slug":"identifying-and-understanding-reversal-patterns","status":"publish","type":"post","link":"https:\/\/flattrade.in\/kosh\/identifying-and-understanding-reversal-patterns\/","title":{"rendered":"Identifying and understanding reversal patterns"},"content":{"rendered":"\t\t
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Reversal patterns are those chart patterns which signal a trend reversal in the price of the security. The trend reversal need not be a complete U-turn in prices. Whenever there is a trend reversal, you can expect the old trend to change direction. This means that the prices may take a breather and the prices may consolidate or move sideways. The price does not have to move in the opposite direction, when we say trend reversal. These trend reversals, normally, happens gradually. This implies that there is a shift in the sentiments of trader and there is a chance of change in the direction the price of the scrip.\u00a0<\/p>

So, when there is an uptrend, the price may move sideways and the price can continue its uptrend or a new downward trend may begin. Similarly, it is vice-versa when the prior trend is a downward trend.<\/p>

Let us look at a few key points to identify trend reversals.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Hammer and Hanging Man<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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Both the candlesticks look similar. The candlestick will have a small upper body and a long wick which is twice or more than the size of the body. If this kind of candlestick appears during a downtrend then it is called Hammer pattern. If it appears during an uptrend, then it is Hanging Man pattern. The color of the candlestick, whether in an uptrend or downtrend is not important. The candlestick, ideally, must not have any upper wick. In some cases, there may be very tiny upper wick.<\/p>

If the candlestick has a very long lower wick, small body and no upper wick, then the strength of the bullish Hammer or bearish Hanging Man is really strong. The probability of a trend reversal is higher.<\/p>

During the downtrend, if the Hammer is green in color, then the price is more bullish than a red Hammer. Similarly a red Hanging Man is more bearish than a green Hanging Man.<\/p>

While a green Hammer does not need a confirmation candlestick, it is important to have a confirmation candlestick after a bearish red Hanging Man to enter a trade. That\u2019s because, in a red Hanging Man, the price opened at high, fell drastically forming a longer lower wick and then closed near the day\u2019s high. In this scenario, it is prudent for the trade to wait for bearish confirmation candlestick that may be formed after red Hanging Man.<\/p>

The bearish confirmation candlestick is stronger if it opens below the body of the red Hanging Man and close below the red Hanging Man. This bearish confirmation candlestick is even more strong, if it is a gap-down opening.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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