Key Bar Chart Reversal

The Key Reversal is an even stronger reversal signal than any other because it occurs as an outside day and indicates a very strong swing in control. There is a definitive failure by one side of the market to maintain the current trending position and the large range seen by the presence of outside indicates serious instability in the market. The large change in position of the opening and closing prices signifies that one side of the market has lost complete commitment and control has shifted to the other side of the market.

This type of reversal really defines the importance of placing good stops and reading the market correctly. Many traders who opened positions in the previous trading period may have to cut their losses on a Key Reversal, and those who have only deeply positioned themselves in the market will be better off cutting their losses or waiting for confirmation of a trend reversal.

In an uptrend, the Key reversal has the following traits:

• The open is above the previous high and has a higher high
• The close is below the previous low and has a current lower low

In a downtrend, the Key reversal has the following traits:

• The open is below the previous low and has a lower low
• The close is above the previous high and has a current higher high