Stock trading is an engaging activity that involves several factors and denominators. It is both scientific and arithmetic, as it includes several charts and candlestick patterns that help capture trending movements of stocks and other assets traded. These charts and patterns are analytical tools that can help predict the movement and reversal of trends and stock prices. As a trader, you need to understand the different trending and reversal patterns. This article explains the sushi roll reversal pattern.
What is a sushi roll reversal candlestick pattern?
The term sushi roll candlestick pattern was first coined by the British writer Mark Fischer in ‘The Logical Trader’, a book he authored. Sushi Roll is defined as a candlestick pattern that consists of 10 bars. The first five bars are known as the inside bars, which are confined within a slim or narrow range consisting of highs and lows. The remaining five bars, known as the outside bars surround the first five bars with both, lower lows and higher highs. This results in the creation of a pattern resembling a literal sushi roll. The appearance of the sushi roll pattern during a prevailing trend indicates that a trend reversal is imminent. This pattern is quite similar to bearish and bullish engulfing patterns in many ways. The main point of difference here is that instead of a pattern consisting of two single bars, the sushi roll pattern is composed of several bars.
What is a reversal pattern?
To understand the meaning of a reversal pattern, we first need to break down the term reversal. Reversal is defined as a trading time when the trend direction of stocks or traded assets changes or reverses. When traders spot a reversal pattern, they regard it a signal to consider exiting their trade, indicating that the trading conditions may no longer be favourable. A reversal patterns signal also triggers new trades, causing a new trend to begin.
Upward and downward patterns
Like it is with most stock market patterns, traders are typically on the lookout for uptrends and downtrends. As mentioned above, the appearance of a sushi roll reversal pattern during a downtrend serves as a warning of a possible trend reversal. It demonstrates a potential opportunity for traders to buy stocks or other assets or to exit a short position. On the other hand, when the sushi roll pattern appears during an uptrend, it sends a signal to traders to sell their long positions or to potentially enter a short position.
Reading the pattern
While Mark Fisher pointed out that the sushi roll reversal consists of five to ten patterns, it should be mentioned that neither of those numbers or durations of the bars should be considered as set-in-stone. The number of bar patterns may differ. As a trader, you must identify the pattern, which may be the best fit for the trade. You must learn to identify trends based on the stock or commodity you choose to trade, using a time-frame, which matches your overall preferred trading time.
Fisher also explains a second trend reversal pattern. The pattern is recommended for traders who can stay invested for the longer term, and it is known as the outside reversal week. This pattern resembles the sushi-roll pattern in most ways, except that it relies on daily data of a trading week, starting every Monday and ending on every Friday. By taking a total of two trading weeks or ten trading days, the pattern occurs at the time when five-day trading inside week is imminently followed by an outside week, also referred to as an engulfing week, comprising of higher highs and lower lows.
For most of us, the sushi roll conjures up a sumptuous Japanese delicacy featuring cured fish, rice and wasabi. However, in the context of the stock market, the sushi roll is a stock activity pattern that helps analyse the performance of a stock and to predict upcoming trends. To understand the sushi roll reversal pattern in detail, you can reach out to our experts at Angel One.