What is the Sushi Roll Reversal Pattern?

Entering the stock market is easy, but gaining the desired profit is not a child’s play. Trading in the stock market requires thorough knowledge. Traders find it comfortable going with the flow of trends in the stock market However, being caught in the reversal can be terrifying.

Technical analysis, especially candlestick patterns helps in getting rid of this fear. It helps in predicting price movements by analyzing historical data of stock price and volume and giving early indications of a trend reversal. One of the patterns used in technical analysis is a Sushi Roll Reversal Pattern. It helps in deciding the future of stock using historical data of the same.

The pattern has nothing to do with the Japanese dish ‘Sushi Roll’. The name was given as the concept was discussed during lunch among many traders. Also, the pattern looks similar to sushi rolls.

What is the Sushi Roll Reversal Pattern?

Understanding the Sushi roll reversal pattern is important to understand reversal patterns. A reversal pattern is one in which the trend direction of a stock reverses from the prevailing one.

The Sushi Roll technique was developed by Mark Fisher in his book ‘The Logical Trader.’ The Sushi Roll Reversal Pattern is a technical analysis tool constituting the study of candlestick charts. Candlestick charts reflect data of various time frames into a single price bar. In the Sushi roll pattern, 10 candles are deeply studied to observe the market tendencies.

From the 10 candles, 5 inside candles manifest narrow movements without many swings. Whereas, 5 outside candles, around the inside candles, show significant swings of inside candles i.e. higher highs and lower lows. The resulting pattern looks like Sushi rolls.

It is important to note that the number of bar patterns is flexible and can differ from 10 bars. The duration can differ, too. When comparing this pattern with others, this pattern varies from bullish and bearish in a way that it constitutes multiple bars instead of single bars. Like other technical tools, it gives an early indication of potential changes in the market condition.

How to Use a Sushi Roll Reversal Pattern?

For traders using the Sushi roll reversal pattern, the number or duration of the bar is not confined. The trader can choose the pattern involving both inside and outside bars according to his/her investment goals. This pattern is so flexible that traders can choose a personalized time frame according to their preferences.

As in other technical patterns, traders look for uptrends and downtrends in this pattern too. In a downtrend, the sushi roll reversal pattern indicates the traders to either buy or cover a short position in securities or exit it. On the other hand, an uptrend indicates the trader sold a long position or enter a short position in stock/securities.

When the last five candles close in the green, it is called a bullish bias. The bearish bias is closing the last five candles in red. The bullish bias is a positive signal whereas the bearish bias is a negative one.

Another trend reversal pattern explained by Fisher is outside reversal. Traders who want to stay invested for the long term might adopt this trend pattern. It resembles the sushi roll pattern. However, the main difference with the outside reversal pattern is based on daily data from the trading week i.e. Monday to Friday. Thus, the trend appears for two weeks or ten trading days, whereas, the Sushi roll pattern takes into account weekly data.

Limitations of using Sushi Roll Reversal Pattern

• This pattern is a bit difficult to understand because of multiple periods.
• Finding a perfect sushi roll pattern is challenging and it takes a considerable amount of time.
• One of the limitations is the possibility of false signals. After some movements price may resume and move into the prior direction instead of the reverse direction.
• This pattern is not 100% accurate.

Final Words

To summarize, the sushi roll reversal pattern is a more accurate trend reversal pattern compared to others. Though many traders do not follow this because of a lack of understanding. If the pattern is recognized and interpreted well, it attracts a huge amount of profits. It is considered a criterion that reflects exit position in the trend reversal phase.

Risk is an inherent element involved in a trade that cannot be mitigated. Techniques like sushi roll reversal aid in minimizing the level of risk involved.