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Reversal Patterns

Evening Star pattern

In an uptrend, the market builds strength on a long white day and gaps open on the second day. However, the second day Forex market trades within a small range and closes at or near its open. This scenario generally shows an erosion of confidence in the current trend. Confirmation of the trend reversal is the black third day.

• The first day is a long white day.
• The second day gap higher from the first day.
• The third day is a long black day and close below the midpoint of the first white day.

Note: Bearish trend and High reliability

Harami pattern

After a long white day at the high end of an uptrend, a black candlestick opens lower than the previous day's close. Trading is typically light and the day ends with a close lower than the open and within body of the first day; a signal that the current uptrend is losing strength. The Harami indicator should be confirmed with the next trading day's candlestick following the reversal trend.

Note: Bearish trend and Low reliability

After a long black day at the low end of a downtrend, a white candlestick opens higher than the previous day's close. The price is driven up, as many shorts are covered, which encourages further buy-ins. The Harami indicator should be confirmed with the next trading day's candlestick following the reversal trend.

• A long body followed by a shot body with opposite color.
• A short body is completely within the prior day's long body.
• The color of the second candle is not important.

Note: Bullish trend and Low reliability

Morning Star Doji pattern

In a downtrend, the market supports the bearish trend with a long black day and gaps open on the second day. However, the second day Forex market trades within a small range and closes at or near its open. This scenario generally shows the potential for a rally, as many positions have been changed. Confirmation of the trend reversal is given by the white third day.

• The first day is a black day which indicates the trend of the market.
• The second day must be a Doji day.
• The third day is a white day and supports the reversal of the trend.

Note: Bullish trend and High reliability

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