Overview Of 3 Bar Reversal Indicator
The 3-Bar reversal indicator is a popular technical stock market indicator. It is applied in the candlestick charts and is based on price action. This indicator establishes the reversal point in an uptrend or downtrend market. This is one of the simplest technical indicators and is easy to comprehend and apply in your trades. When combined with other indicators, it gives an excellent analysis of the stock market movement.
What is the 3-Bar Reversal Indicator?
This indicator involves the study of candlestick charts to find the point of an uptrend or downtrend reversal. The primary aim of the trader here is to enter the market at the right time. In a downtrend, if the indicator shows a bullish reversal, then the trader will take a buy position. Similarly, in an uptrend, if the indicator shows a bearish reversal, then the trader will sell or short his position. However, it is also very important to check for a trend reversal again and exit the position in time to avoid any huge loss.
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How to use the 3-bar Reversal Indicator?
The trader has to observe the following points before making a trade:
- If after 2 consecutive bearish or red candles, a green candle is formed. This means that a bullish trend is likely to occur.
- If after 2 consecutive bullish or green candles, a red candle is formed. This means that a bearish trend is likely to occur.
How to increase the accuracy of the trade?
The 3-bar reversal candles can show up quite frequently, especially in a day trading chart. This can lead to some confusion about when to enter or exit the market. Therefore, you can make your positions safer by further studying the below patterns in this indicator -
- Bullish Reversal - If the green candle closes above the highs of the previous 2 red candles.
- Bearish Reversal- If the red candle closes below the lows of the previous 2 green candles.
The above indications will give a better result for the analysis of the reversal in the price movement.
Conclusion
This trading strategy relies on candlestick patterns and is capable of showing a trend reversal. You should note here that it is only an indication and not a confirmation. That is why it is important to make a trade after checking the 3-bar reversal with other indicators as well.
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