DTT Buzz

Sometimes after an upward exhaustion gap has formed, prices trade in a narrow range for a couple of days or weeks before gapping to the downside. This is the island reversal pattern. This pattern can be spotted readily in Swing or Options trading, but is also seen in Day trading. The island reversal top is so called because the few days of price actions looks like an "island" surrounded by space. An exhaustion gap on the upside and a breakaway gap on the downside creates the island reversal pattern and usually indicates a trend reversal of some magnitude. However, the major significance of the reversal depends on where the prices are located in the trend.

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