Bullish Reversal A Guide On Bullish Reversal Patterns At CAPEX.com

A crucial skill for every trader to learn is to spot the reversal – the moment the price halts and starts going the other way. At CAPEX, we provide traders with all the tools to analyse the markets and identify the bullish reversal.

With the guidance of CAPEX, let’s unpack everything there is to know to understand bullish reversal patterns in technical analysis.

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What does Bullish Mean?

It’s a term you novice traders may be unaware of but it’ll be referred to a lot when reading anything about price movements across any financial market. At CAPEX, bearish and bullish markets will be referred to in our online trading school and featured articles. So what is a bull market, anyway? In most basic terms a bullish market is one in which the valuation of a particular asset continues to rise – essentially traders are confident and are buying the asset.

A bullish market can last for weeks or months to even multiple years. At CAPEX, many traders consider the definition of a bullish market to be a price rise of 20% after it declined in two instances of 20%. These markets are time for traders to buy and hold an asset and at CAPEX you can even buy with a take profits order and stop loss to protect your potential earnings.

What about the bear?

The opposite of the bullish market is the bearish market and it is important to understand too. The bear market regards falling prices and indicates market weakness or lack of certainty from holders of the asset. A bear market typically occurs when an economic contraction takes hold of the market – a great example would be a recession.

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What is the Bullish Reversal?

Nothing lasts forever and that goes for bull runs too. The bullish reversal occurs when a bear market stops and begins to move in the opposite direction – essentially when the market going down starts an upward trend instead. The signal that the market is about to reverse for a period long enough to be considered a trend can be taken advantage of by nimble traders.

Bullish Reversal Patterns

When the market begins a downward trend that signal can be visible in the form of candlestick patterns. Traders at CAPEX can use various trading charts and tools to determine whether the reversal signal is strong or whether there is buying pressure in the market instead.

The bullish reversal, no matter the pattern, will be visible on what is known as the Bullish reversal bar. This is a candlestick pattern and using tools provided by CAPEX, traders can spot this reversal. While there are many great patterns that can aid a CAPEX trader in determining a bullish reversal, we have chosen some of the best candlestick patterns for predicting the bullish reversal.

We think it is always best to experiment with these bullish reversal patterns in the CAPEX free demo trading account – that way you wont risk any of your real money while you learn to spot the bullish reversal.

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Bullish Hammer

The hammer is a pattern that can be identified in CAPEX candlestick patterns when a particular instrument is trading substantially lower than its opening price but rallies to the point that it closes near that initial opening price. What new traders at CAPEX will observe is a candlestick pattern that looks like a hammer shape – the lower shadow will be a minimum of twice the size of thhttps://capex.com/en/trading/school/technical-analysis/candlestick-patternse actual body of the candlestick.

For this pattern, the body represents the difference between the opening and closing prices. The shadow represents the high and low prices for that period. So how does this pattern indicate a bullish reversal? Hammer patterns signal that sellers are about to capitulate and the accompanying price rise may indicate the reversal.

Limitations of the Bullish Hammer

Hammer patterns are great but they certainly do not guarantee that the price will continue to move upwards. Also, hammer patterns do not provide traders with a price target so it is rather difficult to determine what potential rewards can be made from the bullish reversal. However, other candlesticks used with the bullish hammer can assist in determining an exit price.

Multiple Account Types

We know that no two traders are the same and that means a trading account needs to cater to all sorts. That’s why at CAPEX there are 5 unique trading accounts available, each with their own benefits. All our CAPEX accounts feature free support and education tools and will be able to access the demo account upon sign-up. Signing up to a CAPEX trading account is fast and easy too. Our KYC procedure is streamlined and there are multiple ways to fund our CAPEX accounts. All the CAPEX trading accounts can access the same CFD markets and provide traders with excellent leverage.

Bullish Inverted Hammer

The inverted hammer pattern is another bullish candlestick pattern, much similar to the hammer and occurs at the bottom of a downward trend. This pattern typically indicates the potential for a bullish reversal. It’s not necessarily the indicator that trades would invest on, instead the market movement of the following day will determine if the reversal has occurred.

How is this indicator read?

An inverted hammer appears when the open, close, and low price are all around the same value. Hence, giving the shape of an upside-down hammer. The long upper shadow of the high price should be about twice as long as the real body size. You’ll be looking for a green inverted hammer preferably as it indicates a stronger bullish sentiment. A green hammer means the open and low prices are the same while a red inverted hammer means the low and close prices ended on the same value.

Basically, this candlestick pattern is bullish as it indicates that prices of the day struggled to fall. The sellers of that particular instrument are pushing the price back to the open price but an increase in prices indicates that bullish traders are testing the strength of market sellers. It is recommended that other indicators, like the ones available at CAPEX, be used when trading the bullish inverted hammer since the pattern is merely an indicator of potential price change rather than an actual signal to go long.

Limitations of the Bullish Inverted Hammer

While the inverted hammer makes determining a potential price change very easy through a very obvious pattern in appearance, that is unfortunately all it does. The inverted hammer suffers from giving no indication of the potential duration of a reversal or even if the reversal will last at all. There is nothing to say, without using other indicators, that the bullish buyers may fail to sustain momentum and the market could fall into another downtrend.


Bullish Morning Star

The morning star pattern is a common pattern used by action traders at CAPEX and a fantastic tool for identifying the occurrence of a bullish reversal. It’s actually not too dissimilar from a hammer bullish reversal pattern but certainly has different advantages. The morning star candlestick pattern forms on a downward trend and is quite renowned for its three candles that form right at the end of the trend.

The morning star pattern is an indication that traders are growing concerned that bull traders may be buying their way in and that the downward trend will not continue. Let’s talk about the three candles of the morning star pattern. The first candle appears with a long real body, followed by a smaller candle and then a third candle that looks very much like a star due to its tiny size. The star is the indicator of weakness in the downward trend but it’s the fourth candle that is most important. You’ll be looking for a fourth candle that opens above the star.

Limitations of the Bullish Morning Star Pattern

While the morning star pattern is incredibly easy to spot with CAPEX tools and can be used with multiple asset types, there is one major limitation. This bullish reversal pattern is rather rare during periods of a bull run owing to the fact that during a bull run, reversals are typically limited.

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Bullish Abandoned Baby

The abandoned baby is a noteworthy pattern for spotting bullish reversals and no extra bullish confirmations are required either. There are three key candlesticks to this pattern with one being a doji – a candlestick with no body indicating zero price movement. The first candlestick will be long and black, indicating continued strong selling pressure. The next candlestick will appear as a doji where the selling eased and the price closes at the open price or at least near enough. The bullish reversal is confirmed if the next candlestick is a long white candlestick indicating the new strength of the bulls buying pressure.

Traders expect the price to continue to increase since the pattern indicates that selling appears to be exhausted. The signal should indicate the end of the downtrend.

How to trade the bullish abandoned baby

There are always different and unique strategies that suit different traders but there are some general ways to trade the bullish abandoned baby.

Most traders at CAPEX look to enter on the break above the third candlestick and use a stop-loss order. The idea is that the price will continue to rise from this position. The stop-loss order is typically placed below the low shadow of the doji. This is easily completed on the CAPEX buy window of either live trading platform. This pattern doesn’t determine the length of the bullish reversal and so other CAPEX trading tools would need to be used to indicate where to set the profit target.




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Is a Bullish Reversal Good or Bad?

This is a question commonly asked by new traders – is a bullish reversal a good or bad thing? Now the answer lies entirely on the placement of the bullish reversal. The placement is crucial and many new traders can get this aspect wrong. The bullish reversal is only an effective pattern during a downtrend, which means during a period of consolidation or uptrend, the reversal will no longer be effective.

Now some new traders will spot the bullish reversal pattern and leap on the opportunity. However, they often neglect to determine if the market is in consolidation or if the market has already moved to the uptrend. Rather than a legitimate bullish reversal, what the trader has actually observed is merely a pullback and a slight pullback at that. That’s what the CAPEX educational resources are for – to help new traders avoid such mistakes.

So the bullish reversal can be good or bad depending on how a trader recognises it. We at CAPEX recommend that traders be very aware of the market environment and be sure of the bullish reversal pattern before executing a trade.

Practice with the CAPEX Demo Account

Bulls and bears can all get a little confusing when you are new to trading at CAPEX. That is where the CAPEX demo account comes in handy. It’s completely free and there is zero risk. Jump straight in and follow your charts – look for a bullish reversal and act upon it freely. There is no risk of any financial loss, so movie traders can practice strategies used to take advantage of the bullish reversal. Most importantly, you’ll gain the complete experience of leveraging charts to identify a reversal and taking action.

Conclusion – Trade CFDs with Virtual Money with the CAPEX Demo Account

One of the most popular and important uses of technical analysis at CAPEX is to identify the bullish reversal. That is when a downward trending market turns around and gathers steam upward. CAPEX provides plenty of educational resources and trading tools to assist with this identification. Traders should use the CAPEX demo trading account to learn to best identify bullish reversals in your favourite stocks before risking any funds doing so in the live account. Head to CAPEX today to start trading the bullish reversal using technical analysis tools built into the CAPEX trading platforms.

Bullish Reversal – FAQ

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