The trader would have been in the market for 7. This works out to an annual return of The weekly RIOR system is a good primary trading system but is perhaps most valuable in providing back up or fail-safe signals to the daily system. Weekly chart of the Nasdaq Composite Index showing fewer reversal signals but they would have acted as confirmation to the daily charts.

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The buy signals consisted to two bar patterns, the sells of a 10 and 8-bar pattern, the latter of which was found to be better at picking sell points. Confirmation Regardless of whether we used minute or weekly bars, the trend reversal trading system worked well in our tests. But, it is important to remember that any indicator used independently can get the trader into trouble. One pillar of technical analysis is the importance of confirmation.

A trading technique is far more reliable when there is a back up in the way of a secondary indicator. Given the risk in trying to pick a top or bottom of the market, it is essential that at a minimum, the trader use a trend line break to confirm a signal and always employ a stop loss in case he or she is wrong. In our tests, the relative strength index RSI gave good confirmation at many of the reversal points in the way of negative divergence see Figure 4.

As an aside, it is interesting to note that the RIOR daily gave a sell signal on the Nasdaq, which would have gotten the trader out of the market at the open on Feb. The RSI showed strong negative divergence at the top number 1 and strong positive divergence at the bottom number 2. In Summary Timing trades to enter at market bottoms and exit at tops will always involve risk, no matter which way you slice it.

He is a technical trader, author, reviewer and keynote speaker whose work has appeared in a number of major financial publications, websites and newsletters and is a member of the Market Technicians Association MTA and Technical Securities Analysts Association TSAA. He can be reached at [email protected]. But it's thanks to our sponsors that access to Trade2Win remains free for all.

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Sushi rolls are quite common. They can be thought of as a consolidation, followed by a false breakout in one direction, quickly followed by a move in the other direction. A bearish sushi roll occurred on the Alphabet Inc. GOOG daily chart. Following the five candles, the price made a higher high. The price then fell, dropping below the five candle low. This created a sushi roll and a sell signal. The price must close below the prior five candles.

Market Reversals and the Sushi Roll Technique

In this case, it does. Therefore the sell signal comes at the bottom of the long red down candle because that is the first close below the prior five-candle range. A sushi roll occurs over multiple candles. While an engulfing pattern is similar to a sushi roll, it occurs over two candles. Both patterns signal that the price is changing direction, with the more recent price action being more wide-ranging and moving against the prior trend direction.

Sushi rolls are common, which also means the signals will often not generate substantial moves in the direction suspected. The signal is more of a profit-taking measure for existing trades as opposed to a signal for initiating new trades. Since the sushi roll requires a closing price to confirm the pattern, the price can run a long way before the close. The example above shows this, as the price has dropped well below the prior five-candle range before the sell signal at the close can be taken.

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Your Money. Personal Finance. Your Practice. Popular Courses. What Is a Sushi Roll? Key Takeaways In technical analysis, a sushi roll is a type of candlestick chart pattern. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.

We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. It signals upside momentum may be waning.