Island Reversal

• on a daily chart, features a grouping of days separated on either side by gaps in the price action¹⁾
• This price pattern suggests that prices may reverse whatever trend they are currently exhibiting, whether from upward to downward or from downward to upward.²⁾
• An island reversal changing from upward trending prices (bullish) to downward trending prices (bearish) is much more frequent than the opposite.³⁾
• While many analysts and traders hold the belief that gaps will eventually be filled (meaning that prices will retrace over any gap that previously occurs), the Island Reversal is based on the idea that the two gaps in the formation will often not be filled—at least not for awhile.⁴⁾

The island reversal formation has five standout characteristics:⁵⁾

• A lengthy trend leading into the pattern.⁶⁾
• An initial price gap.⁷⁾
• A cluster of price periods that tend to trade within a definable range.⁸⁾
• A pattern of increased volume near the gaps and during the island compared to preceding trend.⁹⁾
• A final gap which establishes the island of prices isolated from the preceding trend.¹⁰⁾

• island reversal top, or bullish island reversal¹¹⁾
• island reversal bottom¹²⁾