As a trader, you need to be prepared to make the right trading decisions based on signals from a chart. One of the important skills you need to master as a trader includes the skill to identify reversal signals. Trend reversals present an opportunity to enter or exit a trade. Furthermore, many traders prefer to trade trend reversals for it is assumed that trend reversals involve much lesser risks than trading a continuous trend. Among the best candlestick patterns that signal trend reversals is the Sushi Roll pattern. In this article, we’ll share with you a comprehensive guide to take advantage of trend reversals through the Sushi Roll pattern.
What is the Sushi Roll Pattern?
The Sushi Roll Pattern is a candlestick pattern that signals trend reversals. First of all, a trend reversal is a period in the chart when a trend changes direction. Trend reversals signal change in trend thereby providing opportunities to enter or exit a trend depending on the location of the reversal.
This pattern makes use of 10 candles in the chart as a reference. For a series of candles to be identified as Sushi Roll Pattern, the first five candles should display a small difference of price highs and lows, and the preceding five candles should show huge differences of price highs and lows that would engulf the first five. This pattern is much similar to the engulfing pattern that uses 2 candles – only for the Sushi Roll pattern, it uses 10 candles.
Sushi Roll patterns are commonly seen at the end of strong trends and can be easily detected as the price breaks through a breakout line.
While this pattern is quite effective to use for long-term trading, it can also be incorporated in short-term trades provided that the time frames and trade expiry would be adjusted to a minimum – probably 1–2-minute timeframe.
For a Sushi Roll that develops at a downtrend, it gives a signal for a possible trend reversal for an uptrend. On the other hand, if the patterns develop at an uptrend, it is giving a signal for a trend reversal for a downtrend. Ideal entry and exits for this pattern would be at the closing of the fifth candle from the second batch of candles.
How to Identify the Sushi Roll Pattern on a Chart
Now identifying the Sushi Roll pattern on a chart requires attention and a bit of help using certain tools.
The first step is to find an asset or stock which is currently at a strong trend. Strong trends usually last for a long period and are comprised of a series of small swings that move toward the direction of the trend. Since a strong trend happens for long periods, it should contain a good number of candlesticks or bars.
Next is to check out what the candles look like at the end of the trend. The last candles at the end of the trend should have narrow or small bodies and tails – signaling hesitation to continue the trend and a possible change in trend.
After which, the end of the trend should also involve 5 candles that are moving against the current trend. These candles that are moving against the trend should have a total dimension that engulfs the previous 5 candles that were moving with the current trend.
To draw the rectangles, start with the second rectangle. In drawing the second rectangle, start counting from the candle which is at the end of the trend (for this case, the red number 1 candle from the image). The last candle is also the candle that is at the highest level for uptrends, and at the lowest level for downtrends. After which, draw the first rectangle using the 5 candles before the last candle of the trend.
For other traders who use the Sushi Roll pattern to detect trend reversals, also incorporate the use of other tools such as the ray tool to draw a breakout line. The breakout line is formed by drawing a line that connects the higher highs or lower lows of price swings in an existing strong trend. As soon as price breaks through the broken outline, a breakout is expected to occur. And when breakouts occur, a trend reversal is expected to come with it.
Last is to determine if the second batch of candles engulfs or overwhelms the previous five candles. While judging the size of both batches of 5 candles can be difficult, it can be made easy by drawing a rectangle that contains all the bodies of the 5 candles in each set. Drawing 2 rectangles that contain the 10 candles brought about the idea that the rectangles seemed like sushi rolls on the chart – thus its name. To draw rectangles and arrays on the chart, simply click on the tools tab located on the upper left corner of the screen – with the ‘paintbrush’ icon. Then choose Ray and Rectangle.
So, to identify a Sushi Roll pattern, you’ll need to consider only strong trends. Next is to pay attention to the end of the trend, and notice the behavior of the candles. After which, use tools such as the ray to draw a breakout line, and the rectangle tool to determine the size of the series of candles. The preceding series of candles should have a dimension that engulfs the first batch of candles in the rectangle for the trend to be considered a reversal.
Examples of Sushi Roll Pattern on Charts
Here are a few examples of the Sushi Roll Pattern appearing on the chart.
The first image shows a Sushi Roll pattern formation on a downtrend. As explained on how to identify the pattern, let’s consider immediately the last few candles at the end of the trend. You’ll notice the shrinking bodies of candles at the end of the trend.
First, draw a rectangle that encloses the last candle and move to the right until all 5 candles are enclosed. Next is to draw the first rectangle which comprises the 5 candles before the last candle of the trend.
A breakout line is also drawn by connecting the average higher highs of all the candles in the trend. As the price breaks through the breakout line, the trend is assumed to reverse.
This example shows that the trend indeed reversed after being verified by the Sushi Roll pattern and as price broke through the breakout line.
This next image shows an example of a Sushi Roll pattern at an uptrend. The series of higher highs and higher lows suggests that the market is at an uptrend.
Next is to check the end of the trend – check for signs of thinning candles. After which, draw a second rectangle by counting from the last candle of the trend and move to the right. Then draw the first candle by enclosing all 5 candles before the last candle.
This example shows that the bearish second rectangle overwhelms or engulfs the first bullish first rectangle thus showing reversal. Also, the price broke through the breakout line which means that the trend is in reverse.
Regardless of the time frame, the Sushi Roll can always be found. Compared to other reversal patterns, the Sushi Roll pattern is considered more effective and reliable since it uses more than one candle as confirmation. Furthermore, this pattern can also be made more effective and powerful depending on the tools and indicators added with it.
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Enjoy and wish you luck!
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