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Chart Patterns > Reversal Days > Reversal Days
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Reversal Days

Reversal signals may be formed by a single bar relative to the preceding bar. The signals vary greatly in strength: weak signals may only signal a peak or trough in the short cycle while extreme signals may indicate a change in the primary trend.

Signal Strength

There are 4 major factors that affect signal strength:

  1. Reversal signals are most reliable if they occur after a strong trend:
               a strong trend = a strong reversal signal.
    If the trend is weak, so is the signal.
  2. Days that spike.
  3. Wide-ranging days - days with a very wide range.
  4. Unusually high volumes.
  5. Signal patterns:

Other reversal and continuation patterns are identified under gaps and candlesticks.

Example

Charles Schwab with 150-day moving average and 20-day volume exponential moving average.

The Key Reversal comes after a strong up-trend and is preceded by a week of exceptionally high volume activity. Price gaps up the day before, opens above the High of the previous day, then falls sharply to form a Wide Ranging Day. The reversal signals a change in the primary trend.Exceptionally high volume activity.

The Key Reversal at [K] comes after a strong up-trend and exceptionally high volume activity [V]. Price gaps up, opening above the High of the previous day, then falls sharply to make a key reversal on a wide-ranging day.

The reversal signals a change in the primary trend. Compare this to earlier, weaker reversal signals that merely signaled a change in the short cycle.



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