We’ve started a blog series on charting basics. Quickly understanding various charting forms and patterns is one of the most valuable skills for futures traders to develop. When you’re trading, you need to be able to decipher as much information from your charts as quickly as possible before you make your trade. If the market is as volatile as it’s been lately, you may have only fractions of a second to make your decision. Successful futures traders learn to read and understand their charts at a glance. In this continuing series, we’ll be covering charting basics that are important to futures traders.
The Reversal Bar (RB)
In charting, a reversal bar shows an initial, often sharp, move in one direction, followed by an abrupt turn, ending the period in the opposite direction from which it started, and below the starting point. In a bull market, after an initial downturn, the reversal bar will turn upwards and close near the period’s high and above the opening price. In a bear market, the opposite is true. After an initial rally, the reversal bar will turn downwards and close near the period’s low and below the opening price.
What a reversal bar looks like:
- In a western bar chart, the vertical bar is long with the protruding arms fairly close together. In a bull reversal, the arms will be at the top of the bar; in a bear reversal, at the bottom.
- In a candlestick chart, the real body (cylinder) is quite short and squat, nearly square, indicating a high and low that are nearly at the same point. In a bull reversal, the real body will be white or light and the top tail will be extremely short; the bottom tail, very long. In a bear reversal, the real body will be black or dark and the top tail will be long; the bottom tail, quite short.
What a reversal bar tells futures traders:
- A reversal bar indicates a market shakeout.
- A bull reversal bar indicates that market control has moved from sellers back to buyers; a bear reversal bar shows control shifting from buyers to sellers.
- A reversal bar predicts an imminent sharp turn in the market. It can also herald a coming change in the market trend.
- Market changes that follow a reversal bar are generally more potent and reliable.
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