In his book, The Logical Trader, author Mark Fisher discusses techniques for identifying potential market tops and bottoms. While they serve the same purpose as the head & shoulders or double top/bottom or triple top/bottom chart patterns discussed in Bulkowski's seminal work Encyclopedia of Chart Patterns, Fisher's techniques give signals sooner, providing an early warning alert to possible changes in the direction of the current trend.
One technique he calls the Sushi Roll. It has nothing whatsoever to do with food except that it was conceived over lunch where a number of traders were discussing market set-ups. He defines it as a period of 10 bars where the first five (inside bars) are confined within a narrow range of highs and lows and the second five (outside bars) engulf the first with both a higher high and lower low. (The pattern is similar to a bearish or bullish engulfing pattern except that instead of a pattern of two single bars, it is composed of multiple bars.) In the example, Fisher uses 10-minute bars.
When the Sushi Roll pattern shows up in a downtrend, it warns of a possible trend reversal and it is a good time to look to buy or at the very least, exit a short position. If it occurs during an up trend, the trader gets ready to sell. While Fisher discussed five-bar patterns, the number or duration of bars is not set in stone. The trick is to identify a pattern consisting of the number of both inside and outside bars that are the best fit with the chosen stock or commodity using a time frame that matches the overall desired time in the trade.
The second trend reversal pattern that Fisher recommends is for the longer-term trader and is called the Outside Reversal Week. Basically it is a Sushi Roll except that it uses daily data starting on a Monday and ending on a Friday. It takes a total of ten days and occurs when a five-day trading inside week is immediately followed by an outside or engulfing week with a higher high and lower low.
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