Being able to accurately capture reversal trends is something that most traders aim for. However, it is not that easy. Spotting reversals at the right time and executing a trade can turn out to be beneficial, but it can also be quite risky if you get it wrong. One such technical indicator that you can use to precisely identify impending trend reversals is the 5 bar reversal indicator. Wondering what the 5 bar reversal pattern is? Here’s some much-needed information about this useful little technical indicator.
The 5 bar reversal indicator – an overview
The 5 bar reversal indicator is a short-term price action pattern that can generate an accurate trading signal and help you time your trades well. As the name itself indicates, the 5 bar reversal signal indicator involves 5 consecutive bars or candlesticks. This technical indicator essentially states that a reversal in the trend is bound to happen after every 5 consecutive bullish or bearish candles. Since the pattern indicates impending reversals, it is used by many traders to chart out counter-trend trading strategies.
How to use the 5 bar reversal pattern?
While this technical indicator can be quite accurate, it is not advisable to rely on it blindly. In some cases, even after a chart registers 5 consecutive bullish or bearish candles, the trend might still continue instead of registering a reversal. Therefore, it becomes important to know exactly when to enter into a trade after spotting the 5 bar reversal indicator.
Here are some key points to note before entering into a trade based on the 5 bar reversal signal indicator.
- Firstly, look out for 5 or more consecutive bullish or bearish candles.
- Once you’ve spotted the pattern, it’s advisable to enter into a trade only if the 6th candle moves in the opposite direction and surpasses the 5th candle. For instance, in the event of a 5 bar bullish candle, you should consider entering into a trade only if the 6th candle turns out to be a bearish candle and manages to surpass the 5th candle.
- If you enter into a trade based on this indicator, it’s better to exit before the next reversal point.
As with all other technical indicators, it is always a good idea to ensure that the trend reversal is confirmed before entering into a trade. Also, since the 5 bar reversal signal indicator involves adoption of a counter trend trading strategy, it is better to stay on the safer side by exiting your positions early.