The kangaroo tail is a pattern that points trading opportunities for traders. It has been introduced in Alexander Elder’s book, Come Into My Trading Room.
The tails could be used to mark trend reversals in markets. While trends need long time to form, the kangaroo tails are formed in just a few days.
The kangaroo tail pattern takes a minimum of three bars to form. A tail is a one-bar in bar chart or one-stick in candle stick chart, which spikes in the direction of a trend, with surrounded narrow bars at the beginning and at the end. That middle bar is the tail, but traders will not know for sure until it followed by a reversal in the following day, when a bar or a stick has sharply narrowed back at the base, letting the tail hang out.
Market tails often occur at turning points in the markets, offer a trading opportunity to traders. Traders should recognize tails and trading against them. Whenever traders see a tail, they should be ready to put on a position trading against that tail, before the close.
Once traders enter trades by using tails, they should place protective stops at approximately half-way of the tails. If the tails are being chewed up, exit without delay. As for the profit-taking targets, they might be established using moving averages and channels.
The kangaroo tail pattern is one of the most reliable reversal patterns, especially when it is supported by signals from other indicators. Furthermore, the pattern could be used in any time-frame. A tail in a longer time-frame usually generates a bigger move than a tail in shorter time-frame.