Reversal Day

A term used in technical analysis. A key reversal day marks an important turning point on a chart but it cannot be correctly identified until prices have moved significantly in the opposite direction to the previous trend. A top reversal day is defined as when a new high has been set in an uptrend and is followed by a close below that of the previous day. A bottom reversal day would be a new low followed by a close above the previous day's close. An island reversal occurs when an upward gap has formed, prices have traded in a narrow range for a few days and a breakaway gap to the downside then occurs. This leaves the price action looking like an island, which indicates a trend reversal.