An island reversal is a price pattern on bar charts or candlestick charts that, on a daily chart, 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.
The island reversal can be a top or a bottom formation, though tops are far more frequent between the two. The island reversal formation has five standout characteristics:
The island reversal can be a top or a bottom formation, though tops are far more frequent between the two. The island reversal formation has five standout characteristics:
- A lengthy trend leading into the pattern.
- An initial price gap.
- A cluster of price periods that tend to trade within a definable range.
- A pattern of increased volume near the gaps and during the island compared to preceding trend.
- A final gap which establishes the island of prices isolated from the preceding trend.
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