Hook Reversal
Candlefocus EditorHook reversals differ from other reversal patterns, like engulfing patterns, in that they may have relatively small differences between the two candlesticks. The size difference is usually not a major factor in analyzing a hook reversal since the reversal occurs quickly and without warning. Instead traders and investors utilize the pattern as a sign that trend direction is due for a change.
This type of candlestick pattern is a favorite among active traders due to its frequent occurrences and ease of recognition in the market. When identifying a hook reversal, it is important to note any changes in volume between the time of the reversal and any preceding candlesticks. Changes in volume can help investors determine if a reversal is significant and withstanding.
Hook reversal patterns can be useful in providing insight into the market's future behavior; however, they should not be used as the only basis for determining changes in trend direction. Investors should incorporate other factors, like technical indicators and economic data, to gain a complete understanding of the market. When combined with an effective trading strategy, hook reversals can be an effective tool in helping traders take advantage of potential changes in prices.