DEFINITION of 'Hook Reversal'
A short-term candlestick pattern, occurring in either an uptrend or a downtrend, that is used to predict a reversal in the trend's direction. The pattern is identified when a candlestick has a higher low and a lower high compared to the previous day's candlestick. This pattern is unique because the difference in size between the first and second bar's body is small, compared to that seen in other types of engulfing patterns.
BREAKING DOWN 'Hook Reversal'
If this pattern is found in an uptrend, then the open must be near the prior high, and the low must be near the prior low. This pattern is often classified as a type of harami position because the real body of the second candle forms within the body of the previous candle. It should be noted that the reversal suggested by this pattern is considered to be more significant if it is identified within a strong trend.