Hook Reversal After Uptrend
The hook reversal pattern is a special variant of the inside day pattern. The inside day means that the second day of the pattern has higher lows and lower highs and therefore the range (area between high and low) is within the price range of the first day's high and low. The hook reversal at a top means that the first day has a higher high and higher low, continuing the current uptrend and prices close above the opening price. The second day opens near the high and closes near the low and consequently, partially reverses the gains of the prior day. The hook reversal top is essentially the candlestick pattern bearish harami.
Hook Reversal After Downtrend
The hook reversal at a bottom is the opposite. The pattern occurs after a downtrend. The first day has a lower low and lower high continuing the downtrend with prices closing above the open. The next day is an inside day where prices open below the prior day's high and then fall further down and close near the low of the day, but still above the prior day's low price. The hook reversal bottom is roughly equivalent to the bullish harami pattern.
Hook Reversal After Uptrend Chart Example
The chart of JP Morgan Chase (JPM) illustrates a hook reversal. The first day makes a higher high with a higher close and the second day makes a lower high and higher low, closing near the low of the day. Essentially, prices rose and then fell creating a upside down fish hook "i^".
Hook Reversal After Downtrend Chart Example
The chart above of JP Morgan Chase (JPM) shows a hook reversal after a downtrend. The first day bar opened and then closed lower, making a new lower low and new lower high. The second day was an inside day with an open near the higher low and a close near the lower high. Prices reversed in the shape of a fish hook "\j"
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- The Pattern Site. (2008). Bulkowski's Measure Rule. Retrieved June 1, 2012, from http://thepatternsite.com/measure.html