Book notes: Secret of Pivot boss by Franklin Ochoa , Chapter 2

In this article, we will understand the formation of the candles which helps us to understand "start of reversal pattern".

Candle meaning

fig 1

fig 2

1. Mr. Ochoa tells us the following points for reversal wick pattern.

• We should focus on fig 2 candle which has wick to body ratio from 2.5:1 to 3.5:1.
• Close% should be less than 5%.
• Fig 3 will confirm this pattern.

fig 3

2. Extreme reversal pattern

fig 4

• The first bar of the pattern is about two times larger than the average size of the candles in the lookback period.
• The body of the first bar of the pattern should encompass more than 50 percent of the bar's total range, but usually not more than 85 percent. 
• The second bar of the pattern opposes the first. If the first bar of the pattern is bullish, then the second bar must be bearish. If the first bar is bearish then the second bar must be bullish.

Example

Fig 5

In the middle responsive buyer try to test new price values by creating long candles, but reversal next candle of opposite colour prooves that trend resume. ref fig 5.

3. Outside reversal setup

Fig 6

• The engulfing bar of a bullish outside reversal setup has a low that is below the prior bar's low & close that is above the prior bar's high.
• The engulfing bar of a bearish outside reversal setup has a high that is above the prior bar's high and a close that is below the prior bar's low.
• The engulfing bar is usually 5 to 25 percent larger than the size of the average bar in the lookback period. 

Below is the logic behind that

                                             Fig 7

4. Doji reversal setup

• The open and close price of the doji should fall within 1 percent of each other, as measured by the total range of the candlestick.
• For a bullish doji, the high of the doji candlestick should be below the ten-period simple moving average.
• For a bearish doji, the low of the doji candlestick should be above the ten-period simple moving average.
• For a bearish doji, one of the two bars following the doji must close beneath the low of the doji.
• For a bullish doji setup, one of the two bars following the doji must close above the high of the doji.

This was the summary of chapter 2. I would like to add more concepts in my future blogs. I will also try to present example in order to confirm these logics.

Thanks for reading it. I would like to thank the author to provide this knowledge and let it be available for us.

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