Hook Reversal pricing model

Reversal hook A reversal price pattern can appear in both the downtrend and uptrend. This model is not only simple and easy to determine, but also quite reliable. Therefore, if you understand the model and know how to combine other analysis, you can exploit the model optimally to create opportunities to make money with forex. In the following article, we will help you understand how to use the Hook Reversal model so effectively.

What is Reversal hook?

The Reversal hook is a short-term price pattern consisting of 2 candles, of which the second day is completely in the front candle. This means that the trading band of the next session must be narrower than that of the previous session.

Hook Reversal is a method called Western price model method. Sometimes, they are quite similar to some samples Engulfing, Harami good Dark Cloud Cover in Japanese candlestick pattern. However, Japanese candlesticks usually have more stringent requirements on the ratio as well as the difference between the two candles and the Hook Reversal pattern does not need this, as long as the latter is in the previous candle. It can be seen that conditions for determining Reversal Hook are quite loose, so this model often appears quite a lot of price charts.

Features of Reversal Hook

The Reversal Hook Reversal pattern is a reversal pattern that can appear at the top of the uptrend (Bearish Hook Reversal) and the bottom of the downtrend (Bullish Hook Reversal). To determine this model, we rely on the following characteristics:

The pattern appears at the top / bottom of the trend

The bottom of the lower candlestick is higher than the bottom of the previous candle, the lower is higher than the previous candle

The shadow of the second candle should be very short

The reliability of the model depends on the strength of the previous trend. If the previous trend has a steep slope and is entering the overbought / oversold area, the stronger the signal of the reversal of this pattern. Besides, the Hook Reversal pattern will also become more reliable when appearing in the support and resistance areas. In addition, trading volume at the second large candle will also be a plus point when using this pattern.

Psychological evolution of the Reversal Hook model

Take the example of the Reversal Hook model appearing in the downtrend, also known as the Bullish Hook Reversal. Price is in downtrend which means that the sellers dominate and control the market. The first large candle in the Hook Reversal pattern shows that sellers continue to pressure the market and create a deep discount, forming a new low.

But then the situation changed dramatically when traders began to take profits, the buyers proceeded to catch the bottom positively and eventually created a bullish candle. Besides, the price never dropped to the previous bottom, indicating that the market did not accept this bottom area. Here, those who have entered the sell orders before will suffer losses and losses, those who are going to enter the sell orders will become considered. These are signs that prices are likely to reverse after that.

Actual example of Reversal Hook model

Below is an example of Hook Reversal model on GBPUSD chart. As you can see, the pattern started with a strong bullish candlestick, but followed by a bearish candlestick that sat within the previous candle. Not only that, after creating the Hook Reversal pattern, the market continued to create two more short shadow candles to form the pattern. 3 black crows. These are all bearish signals. And as expected the market has gone down.

Instruction to trade with Reversal Hook model

Entry point command

First, you need to consider where the Hook Reversal pattern appears on the chart. If these are support / resistance areas, the trading opportunity will become more attractive. As shown in the example below, to the left of the chart you will see a support / resistance level has been formed, showing that the price has "bounce" bounced up and down several times into this area. Therefore, when Hook Reversal appeared in the above price area, trading opportunities became clearer.

Although the reliability of the model is quite high, it is advisable not to enter the command immediately after the model is completed for safety.

Instead, you should wait for one signal breakout (break) on command. If we are in an uptrend, we would enter a Sell if the price broke below the bottom of the first candle. Conversely, in case of a downtrend, we will enter a Buy (Buy) when the price rises above the top of the first day of the pattern.

In many cases, the price often comes back to test the breakout point, so to be sure, you can wait for the price to recover to the breakout threshold, then proceed to the order.

How to set a stop loss (Stop loss)

Setting a stop loss is a wise way to protect yourself in a volatile market like forex. In case of a sell order in an uptrend, your stop loss should be placed a few pips above the top of the first candle. In the case of a buy order in a downtrend, a stop loss should be placed a few pips below the bottom of the first candle.

How to take profit (Take profit)

The easiest way is to take a stop loss multiplied by 2 or 3 times, you will know where the profit taking should be. However for more thorough analysis, you can use these indicator or reversal candle pattern to know when the trend is getting weaker and exit orders.

summary

Hook Reversal is a simple price model that appears heavily on charts and gives fairly reliable trading signals. Remember that when dealing with the price model, you need to be patient to wait for more confirmative signals and set a full stop loss, take profit. Hopefully through the article, you have gained some useful knowledge to find profits with forex. Good luck!

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Author: Tin Nguyen