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4 Bearish Price Bar A bearish price bar is identified by the open and close, as well. In a bearish price bar, the close is below the open. High Open Close Bearish Price Bar Again, this is a very simple illustration. However, it is important to understand this basic framework, to define price action. Similar to the bullish price bar, the bearish price bar is the result of trading within a specific period of time. However, the bearish price bar means that there are more sellers than buyers. When this price bar forms in a bearish potential reversal zone, it can signal a reversal, as well.
Price Bars in the Potential Reversal Zone As a stock enters into a potential reversal zone, it is important to examine the nature of the price bars. This will help determine the validity of a potential reversal within the harmonic area. The nature of the price bars also will indicate the strength or weakness of the price action. In a potential reversal zone, there is a specific price range, where a stock "should" tum around. I say "should" because the potential reversal zone is an area that is highly probable for a change in trend. It is not 100% guaranteed. However, as you will see, the harmonic area does identify excellent areas for potential reversals. Therefore, a stocks price bars within this harmonic area will determine the validity of that potential reversal. Ideal Reversals Ideal reversals frequently occur in potential reversal zones. Sometimes, a stock will reverse exactly off an important harmonic calculation. These instances are easy to decipher. However, the ideal reversal does not always occur in a potential reversal zone. But, if you understand how a reversal "should" occur, you will be able to decipher valid reversals within a harmonic area. There are two important aspects of a reversal to observe within this harmonic area. The most important characteristic of the price action in the potential reversal zone is some type of tum around or change in the previous trend. This would be evidenced by price action that exhibits a price bar that is opposite to the predominant trend. For example, if you were looking to buy a stock that was forming a bullish pattern, you would want to see a bullish price bar in the potential reversal zone. As the stock is declining, the price action most likely would form bearish price bars. However, if the stock began to reverse, as evidenced by bullish price bars in the harmonic area, a potential reversal could be developing. Reversals in an area with several harmonic numbers often form in this fashion. But, one price bar that is opposite to the current trend does not entirely signify a valid reversal.
Reversal Continuation The other element of a valid reversal is some type of continuation of that change in trend. Using the bullish example again, if a stock started to rally after hitting the potential reversal zone, it should be followed by another bullish price bar. In this example, it would be ideal if the price bar rallied and closed above the previous high, while maintaining a higher low. The concept of continuation is essential in providing evidence of a valid reversal. Although the following illustrations are very simplistic, it is important to have an understanding of standard reversal action. Ideal Bullish Reversal In an ideal bullish reversal, it is important to see a bullish price bar in the potential reversal zone. Ideally, a bullish continuation will validate the reversal. POTENTIAL REVERSAL ZONE Ideal Bullish Reversal in Potential Reversal Zone Obviously, this is a very ideal situation. But, stocks fi-equently reverse like this after hitting a harmonic area. The important concept is to
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