Targets and Stops (002) – Key Reversal Bar

Last time we discussed the previous fourth retracement and how the method can be used as an effective tool to calculate stops and targets. Today in the second addition of targets and stops we are discussing Key Reversal bar.

The very fact that the High-Low-Close formation is called ‘Key’ attaches significance to it. From personal experience we find this formation a bit rare, it does not happen anywhere and everywhere. And because it’s not that common also makes it useful. KR is not your everyday reversal signature.
So what is the formation? This is a trend reversal formation. An uptrend exhaustion of sub minor (few days), minor (<3weeks), intermediate (>6 weeks), primary (> 9 months) etc. could see a KR. After an uptrend, a new high, a higher high, if markets close below the previous close, a KR is formed. The idea is simple, the bull energy has been capped. Indicator failure is a reality and KR is no exception but KR’s have an amazing strike rate.
Even among KR’s there can be varying potency. Heavier down volume, deeper close compared to the previous close, KR at key resistances can add reversal strength to the formation. And without doubt as we move up in degree, KR attains more reversal strength. A KR on monthly is stronger than a KR on weekly prices and so on. One could even combine KR signals. A KR on monthly accompanied by a KR on weekly and or daily could make a stronger negative case.
We have illustrated the Indian Nifty daily potential KR case. If prices close Friday (23 July) below 5,441, we have a KR. This daily KR is not accompanied by a weekly or monthly KR, but it does come at a key resistance. 5,441 is the level to watch for the KR to work.  Let’s see.
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Orpheus Research at Reuters – United Kingdom
Orpheus Research at Reuters – United States