An island reversal is identified by gaps between the signal day and the days on either side. This is a strong short-term signal.
Active or Reactive?
Many investors follow active strategies but end up being reactive, rotating in and out of stocks at the wrong time.
Colin Twiggs' free weekly review of the global economy will help you identify market risk and improve your timing.
After an up-trend:
- The day's Low is above the High of the day before and the day after.
After a down-trend:
- The day's High is below the Low of the day before and the day after.
Even stronger signals are island cluster reversals where an island is formed by several bars rather than one.
The signals are most reliable if they occur after a strong trend. If the trend is weak, so is the signal.