What Is a Sushi Roll?

In technical analysis, a sushi roll is a type of candlestick chart pattern. Candlestick charts visually representing the size of price moves with different colors. A trader can specify a certain time period, and a candlestick chart shows four price points (open, close, high, and low) throughout the period of time the trader specifies.

Traders use the candlesticks to make trading decisions based on regularly occurring patterns that help forecast the short-term direction of the price. If a sushi roll appears in a prevailing trend, it is a sign that there may be an upcoming trend reversal. 

Key Takeaways

  • In technical analysis, a sushi roll is a type of candlestick chart pattern.
  • Traders use the candlesticks to make trading decisions based on regularly occurring patterns that help forecast the short-term direction of the price.
  • If a sushi roll appears in a prevailing trend, it is a sign that there may be an upcoming trend reversal. 

What Does a Sushi Roll Tell You?

Candlesticks are created by up and down movements in the price. While these price movements sometimes appear random, at other times they form patterns that traders use for analysis or trading purposes. There are many candlestick patterns. 

A sushi roll candlestick consists of 10 candles: the first five—the inside bars—are confined within a narrow range of highs and lows. The second five candles—the outside bars—engulf the first with both a higher high and lower low.

A sushi roll involves looking at the most recent five candles, and comparing them to the previous five candles. This pattern can appear during any timeframe, such as daily charts or 1-minute charts.

Sushi roll analysis is used to try to predict market tops and bottoms. It is seen as an early-warning indicator of an impending shift in the market direction. Mark Fisher originally identified the pattern and named it the sushi roll in his book, "The Logical Trader." Fisher created an investment philosophy that he called the ACD system, and this system is described in detail in his book. The sushi roll is mentioned by Fisher as one of the optional components of his ACD system.

If the trend is up, and the second set of five candles moves above and then closes below the first set of five candles, that is a potential sell signal. If the trend is down, and the second set of five candles moves above but then closes above the first set of five candles, that is a potential buy signal. Despite their similar-sounding names, a sushi roll and a sushi bond are not related. A sushi bond refers to a bond released by a Japanese issuer in a market outside of Japan, and with a currency that is not the yen.

Example of How to Use a Sushi Roll

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. The price moved mostly sideways for five candles centered around the $1,440 region. 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.

Sushi roll chart pattern in GOOG daily chart
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The price must close below the prior five candles. 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.

Limitations of Using the Sushi Roll

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.