How to Identify Candlestick Pattern Bounces, Rebounds, or Reversals?

Recognizing 3 Types of Upside Price Action in a Downtrend

During a Downtrend price does not just go down, instead it often has brief periods where it moves up. Determining whether it is just a Bounce, Rebound, or if it is a true Reversal requires Spatial Pattern Recognition Skills™ to read the chart properly.

The chart example below shows the different candlestick patterns of Bounces, Rebounds, and Reversals.

Everyone learns the basics of candlesticks as this is currently the most popular chart style to use. However, just learning the Japanese continuation or reversal patterns is where a Technical Trader starts. If a trader wants to become a proficient Semi-Professional or Professional income earning Trader, then they must learn more than just these basics.

How to identify Candlestick Pattern Bounces, Rebounds, or Reversals requires recognizing the three types of upside price action in a Downtrend. Each type is different for several reasons which include the following:

1. Which Market Participant Groups are in control of price at the time:

a. Professional Traders who Sell Short
b. Retail Investors or Retail Traders typically using guru recommendations
c. High Frequency Trading Firms trading to move price
d. Dark Pools aka the giant Buy Side Institutions who are long-term Investors, buying on behalf of their Mutual Fund Holders

2. Whether the candlestick pattern is a:

a. Buy to Cover order
b. Buy on the Dip order
c. Time Weighted Average Price TWAP Buy Order

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Martha Stokes CMT

TechniTrader technical analysis using a StockCharts chart, courtesy of

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