A very painful condition suffered by pirates when they try to get dressed in the dark. Also, a situation that comes up in technical trading.
A couple basics before we get to the meat of this one. First, technical trading. This form of investment analysis uses chart patterns (the day-to-day movement of a security's or market's price) to discern what's likely to happen in the future.
Second, the hook reversal relates to candlestick charts. In these graphic presentations, the activity of a given day (or month, or whatever time period you are looking at) gets summarized in little pictures that somewhat resemble a candle.
The daily movement (or whatever time frame is the basis of the chart) has a boxy middle with little lines poking out the top and bottom. Its box part represents the open and close on the day, and the vertical line identifies highs and lows.
Okay, basics out of the way. Now, to the hook reversal. It involves a situation where the chart has been trending in one direction. A few days of a stock going up, for instance. Then, the next day, the stock basically holds steady...a sideways move. Except...that sideways move has a lower high than the previous day, and also a higher low.
So it looks like two candles sitting next to each other, but the candle on the left is bigger than the one on the right. It's base is a little lower and its top is a little higher. The smaller candle has a lower high (top is lower) and a higher low (bottom is higher).
The hook reversal is a sign that the trend could reverse. The stock that has been going up might change direction and start going down.
Related or Semi-related Video
Finance: What is Technical Analysis?12 Views
Finance a la shmoop what is technical analysis okay we have fundamental [Fundamental analyst sat at a desk]
analysts who look at what the company does for a living how hard its products
are to manufacture how much they sell for how big global demand is how [Fundemental analyst check list]
powerful their brand is what their profit margins are in their growth
prospects from there how their balance sheet looks you know stuff like that
technical analysts don't care at all about any of that stuff those are
fundamental elements of a company technical analyst view stocks only as [Technical analyst chucks the list away]
trading sardines and really couldn't care less how the companies they are [Sardines with company logos on]
trading actually make money or run their businesses technical analysts follow
stock charts with influence from all kinds of shapes made by recent [Examples of shapes on a blackboard]
historical prices on a graph made by these stocks like you have a triple top
here right like so there's a hard line is trying to break out of that line line [Top line is highlighted]
says nook smacking you back down they can't break out so it's triple top and a [Hand smacks the price back down]
lot of gravity there so no maybe I'm short that stock at the end of that
triple top all right then you have the dome yeah it just kind of goes up but it
doesn't really want to break up so it's kind of trading down and then what do I
do with the stock here I don't know I don't know then you have descending tops [End of the dome is highlighted]
where Oh tried to break out oh but now it's a lower low because they miss their
earnings ah now it's a lower low and again they missed so the stocks going [Trend line showing the price going down]
nowhere it's pretty depressing around here then you have a saucer notably
shaped like a smiley face yeah you can see the two eyeballs there so you want [Smiley emoji appears]
to be long that stock somewhere in the middle there because
then it goes up and does better and yeah life's good and color and dimension gets
added to the stock charts via other technical things like volumes of shares [Colorful 3d stock chart]
traded in a given week or day or month if you're having a mini deja vu well it
might be because you just saw our M night Shyamalan dingdong
directed video directly cleverly called what is a Chartist and while they're [Girl working behind a computer]
basically the same thing technical analyst and chart us you know
same foot so yeah fundamental analyst concerned with nuts and bolts of the
operations of a business technical analyst concerned with pretty little [Descriptions of each analyst shown next to them]
drawings of the nuts and bolts reflection on a graph and interpreting
what that all means a kind of like staring at you know animal problems in [Looking at dung through a magnifying glass]
the jungle mental health analyst well I had to get a lot of these guys in their
office sorry different kind of therapy [Both the analysts at a therapist]
Up Next
What are Triple Bottom and Triple Top? In technical analysis, a triple bottom is considered a strong bullish signal. It implies that a support leve...