Open Close Reversal at Top

The open close reversal at a top occurs during an uptrend. The open close reversal bar gaps up at the open above the prior day's close and then falls downward closing above the previous day's closing price. The main requirement is that the close of the open close reversal bar must be near its low and above the prior day's closing price. An interesting trait of this pattern is that technically, because the high of the open close reversal bar has a higher high and has a higher low, the uptrend is still intact. In fact the only bearish trait is that sellers rejected the higher highs and prices closed near the low of the price bar. The closing price reversal at a top is roughly equivalent to the candlestick version called the bearish counter-attack lines.

Open Close Reversal at Bottom

The open close reversal at a bottom occurs during a downtrend. The open close reversal bar typically gaps down at the open below the prior day's close and then rises throughout the day, closing just below the prior day's closing price. The main requirement is that the close of the open close reversal bar must be near its own high and be below the prior day's closing price. This pattern does not show as much strength from buyers as the closing price reversal pattern or the key reversal pattern because buyers were unable to make a higher high. Moreover, because the open close reversal bar has a lower high and has a lower low, the downtrend technically is still intact. In fact the only bullish attribute is that buyers rejected the lower lows and prices closed near the high of the price bar. The closing price reversal at a bottom is roughly equivalent to the candlestick version called the bullish counter-attack lines.

Open Close Reversal Top Chart Example

The chart above of the 20+ Year Treasury Bond ETF (TLT) illustrates a top formed by an open close reversal pattern. The pattern is preceded by an uptrend. The open close reversal bar opens with a large gap up making a higher high, but prices quickly fall down the whole day closing near the low and closing roughly at the previous day's close. Prices begin a new four day downtrend from there.

Open Close Reversal Bottom Chart Example

An open close reversal is shown at a bottom on the chart above of the Gold ETF (GLD). There is a preceding downtrend of five bars with lower highs and lower lows. The open close reversal bar gaps down opening below the prior day's low, prices move a little lower and find buyers. Buyers then push prices up closing near its high, but still under the prior day's closing price.

Works Referenced

1. Kirkpatrick II, C.D., & Dahlquist, J.R. (2010). Technical Analysis: The Complete Resource for Financial Market Technicians (2nd ed.). Upper Saddle River, NJ: FT Press.
2. Rockefeller, B. (2011). Technical Analysis For Dummies (2nd ed.). Hoboken: John Wiley & Sons.
3. The Pattern Site. (2008). Bulkowski's Measure Rule. Retrieved June 1, 2012, from http://thepatternsite.com/measure.html