Key ReversalsTechnical Analysis
Key Reversals are single bars which define a change in the trend. They usually won’t be obvious as the key reversal point until much further into the future after the new trend is obvious. These bars always come after a strong trend in either direction, either uptrends or downtrends.
These bars initially follow the trend, then reverse during the trading period. These bars open near the previous bar’s close. They’ll move the same direction as the trend, but reverses during the trading period and closes near the previous bar’s close. This movement initiates the reversal, which will be confirmed and continued by movement retracing the prior trend.
Key reversals are accompanied with a substantially higher amount of volume than the preceding bars. This volume normally falls off substantially in the trend that follows. This volume confirmation is a strong confirmation signal since it is one of the few current confirmation signals you receive before the trend begins moving in the other direction.
As a final note, due to their nature, they are often known as “Swing Bars”. Since the represent the reversal in a trend, they are the highest and final bar in an uptrend or the lowest and final bar in a downtrend. The trend following them “swings” in the opposite direction, hence their name.
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