Secrets of Price Bars
Often, the shape of an individual price bar will give a signal that a reversal
in trend is taking place. If this occurs at a forecast or targeted price, then it can add
weight to my trading decision.
As opposed to many of the chart patterns discussed in the sections on Elliott Wave and
Gann, these one or two-day (bar) reversal patterns do not require a lot of interpretation.
However, they do not work every time and I use individual bar shapes to reinforce my
Elliott/Gann patterns and add weight to reversals at my target prices.
These bar shapes are loosely based on Japanese Candlestick analysis some of them
I discovered in my own work, years before I learned that Japanese Candlesticks used
similar ideas. I find the reversal bars work best on daily bar charts, although they can
often be seen on weekly and intra-day charts, too. (On monthly charts, some of the shapes
are more rare.)
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A Key Reversal is a widely used technical analysis tool that signals a change in trend.
A Key Reversal at the top of an up-trend is recognised with prices surging to
new highs (usually significantly higher than the previous trading day), only to
reverse lower and close below the previous bars low and near the low of the
A Key Reversal at the bottom of a decline is recognised with prices first collapsing
to new lows (usually significantly lower), followed by a recovery to above the
previous bars high and closing up on the day.
Both the phenomena signal an immediate reversal of trend.
Figure 295: Key Reversal where prices spike lower than the low of the previous day and
close higher than the high of the previous day. This is a strong sign of a bottom.
Figure 296: Key Reversal where prices spike significantly higher than the high of the
previous day and close lower than the low of the previous day. This is a strong sign of a
Another one-day reversal shape is known as a Shooting Star, Gravestone Doji or
Dragonfly Doji in Japanese Candlestick analysis. This bar is similar to a Key Reversal in
that at a market top a Shooting Star usually surges up to make a
higher high than the previous bars high, followed by a reversal to close near
the extreme low point of the trading day
But unlike a Key Reversals, a Shooting Star does not have to close below the
previous bars close to have validity.
(I.e. the principle is the same but the Japanese have a different name for this slight
At a market bottom, a Shooting Star will collapse to lows under the lows of the
previous bar, and then recover to close near the bars high. But unlike a Key
Reversal, the bar does not have to make a higher high than the previous bars high.
All that is necessary to verify the Shooting Stars forecasting significance is
that the height of the bar is of significant, reasonable height.
Another pattern that serves advance notice of a change in trend is technically a
two-bar reversal, known as a Tweezers Top or Tweezers Bottom. This pattern,
also based on Japanese Candlestick analysis, occurs when two consecutive trading bars
produce identical high points (at the top of a bull trend) or identical lows (at the
bottom of a bear trend).
The market does not have to close at the highs/lows (although it can) but the two
extreme highs/lows have to be back-to-back with identical (give or take a few ticks)
highs/lows to one another.
Unlike a Key Reversal, the Tweezers Top rarely forecasts a major change in trend - only
a correction - but this can still be a significant retracement of the previous market
trend. (Look for retracements to the magic 38%, 50%, 62% areas.)
While all these patterns are not everyday occurrences, keeping an eye out for them will
greatly enhance your ability in spotting turning points in advance of an actual change in
All the above bar shapes, with their spikes to new highs and lows followed by closes in
the opposite direction, reliably forecast changes in trend, and therefore constitute an
important facet of turning point analysis. However, they do not forecast the amplitude
of the trend-reversal, only that there will be some type of reversal.
That is where I use Elliott Wave counts, Gann techniques and Fibonacci percentages to
forecast target prices.
Here are some examples: (Only Available to Course
Gaps are one of the most easily recognisable technical indicators. A gap is simply an empty
spot formed on a price chart when prices do not overlap the previous bars
price action. This is a useful concept to keep in mind because it helps to explain some of
their technical consequences. Sometimes market psychology changes overnight or over a
weekend and that change in psychology can force prices to open and stay above or below the
previous days range.
Gaps on daily and intra-day charts are most reliable. They can appear on longer-term
charts such as weekly charts, but are rare. Gaps on monthly futures charts are very rare
because they generally are constructed to avoid gaps caused by contract changeover.
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