Tuesday, November 1, 2022

Island Reversal

An Island Reversal features a grouping of days separated on either side by gaps in the price action. This price pattern suggests that prices may reverse whatever trend they are currently exhibiting, whether from upward to downward or from downward to upward.
  • This price pattern occurs when two different gaps isolate a cluster of trading days.
  • An island reversal changing from upward trending prices (bullish) to downward trending prices (bearish) is much more frequent than the opposite.
  • Short-term exhaustion;  overbought / oversold conditions. (Also see: outside day)

An island reversal on June 11, 2020:

3 months later: the market did move higher, but 

the breadth was poor (small number of stocks participated):

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