Every trader should be aware of one day patterns. However, because of their simplicity, traders often overlook them. By using these patterns, traders have a clearer picture of the direction that the market may be moving. Among the several one day patterns, I will discuss two specific patterns that relate to the chart gaps that I discussed in previous articles.
The most uncommon of these two patterns is called the key reversal day pattern. The criteria for this pattern is not as flexible as the criteria for the simpler reversal day pattern. The difference between one and the other is small, yet significant. When your candlestick reaches a lower low and a higher high accompanied by a higher close an upward reversal is developed. Conversely, when a higher high and a lower low accompanied by a lower close, the reversal candlestick is considered to be downward.
Key reversals show significant market moves in the opposite direction of current trends. Not only do they show the inability of the market to keep the upwards/downwards move to new highs/lows, but also the development of new lows/highs in the opposite direction.