Hook reversal pattern is a candlestick pattern which also found in a bar chart. This pattern can be either bullish or bearish. Bullish hook reversal pattern is generally found after a downfall and it indicates a possible bullish reversal.
This pattern consists of two bars or candlesticks. In bullish hook reversal pattern, a bar or candle forms inside the range of the previous bar after a downward movement. In the downward movement bars form lower lows but suddenly one bar creates both a higher low and lower high compared to the previous candle.
These two bars are known as bullish hook reversal pattern. Here is an example of a bullish hook reversal pattern.
Figure: Bullish hook reversal pattern
Bearish hook reversal pattern forms as soon as a bar or candle forms inside the range of the previous bar or candle. This pattern generally found after an upward movement when a bar suddenly creates lower high and higher low compared to the previous bar.
Here is an example of a bearish hook reversal pattern.
Figure: Bearish hook reversal pattern
Trading Hook Reversal Pattern:
Hook reversal patterns can be traded in different ways. There are many indicators and strategies that are suitable for this pattern. The most popular trading strategy is to trade this pattern with trend line or support-resistance. For long positions, traders generally look for bullish hook reversal pattern near or at support line.
This bullish hook reversal pattern near or at support line indicates that the currency pair is bouncing back from the support line. A stop loss should be placed a little lower than the support line. Take profit target should be determined by finding resistance line.
Here is an example chart of the bullish hook reversal pattern with trend line which is acting as a support line and resistance.
AUD/USD 4-hour chart (given above) is showing bullish hook reversal with support and resistance.
Traders take a short position as they find a bearish hook reversal pattern near or at the resistance. This resistance can be the horizontal flat line or a down trending trend line. Stoploss orders generally placed above the resistance line. Take profit or profit target order usually placed at the support level.
Here is an example chart showing bearish hook reversal pattern with support and resistance.
EUR/GBP 4 hour chart is showing bearish hook reversal pattern and horizontal support and resistance lines.
This pattern is an advanced candlestick or bar pattern. This pattern is an effective pattern for trading if used properly with other indicators. A bar having higher low after a bullish hook reversal pattern is the more confirmed entry point for a long position.
Inversely, a bar or candle having lower high after a bearish hook reversal pattern is the more confirmed entry point for a short position.