This pattern is a very common pattern, especially in up-trending markets. It is easy to notice on a chart and can lead to good profits. The pattern starts out with an above average rise in the stock compared to the market. The rise can be sometimes described as ‘dramatic’. This is followed by candlestick sell signals. Profit taking gets underway. The price pulls back and soon starts displaying indecisive signals. This should trigger an alert for the candlestick trader. As the indecisiveness gives way to bullish candles, the candlestick trader anticipates the price will try to test the recent highs. This should be considered as the first target. If the price breaks this high, then the stock is free and clear to start a new uptrend.
If bearish or indecisiveness candles are noticed as the stock approaches its previous high, then the probabilities are that the J-Hook pattern has failed. This would warrant immediately getting out of the position. Failure of the J-hook pattern at the previous highs can lead to a Double Top formation, a classic western chart pattern.
The following chart of CRM shows a J-Hook pattern formation. After a steep rally from $36 to $44, traders started taking profit. the uptrend was stopped by a Bearish Harami. After a few days of pullback, the candles started growing indecisive. This should alert the candlestick trader that a J-Hook pattern could be in the making. A Morning Star signal started the next leg up and the previous high was pierced with a strong bullish candle.
Chart courtesy of StockCharts.com