Island Reversal

Island Reversal

An island reversal is identified by gaps between the signal day and the days on either side. This is a strong short-term signal.

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.

Island Clusters

Even stronger signals are island cluster reversals where an island is formed by several bars rather than one.

Island Cluster Reversal

Remember:

The signals are most reliable if they occur after a strong trend. If the trend is weak, so is the signal.

Colin Twiggs

Author: Colin Twiggs is a former investment banker with over 30 years experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary newsletter.

Colin also writes The Patient Investor newsletter which focuses on the global economic outlook and key macro trends.

In addition, he founded PVT Capital (AFSL No. 546090) which offers investment strategy and advice to wholesale clients.