REVERSAL

A reversal is a change in the direction of a price trend, which can be a positive or negative change against the prevailing trend. On a price chart, reversals undergo a recognisable change in the price structure. A reversal is also referred to as a “trend reversal,” a “rally” or a “correction.

A Reversal is when an uptrend, which is a series of higher highs and higher lows, reverses into a downtrend by changing to a series of lower highs and lower lows. A downtrend, which is a series of lower highs and lower lows, reverses into an uptrend by changing to a series of higher highs and higher lows.

Reversals often occur in intraday trading and are more complex and tend to be extreme, but they can also occur over days or weeks of trading. Technical analysts watch for reversal patterns throughout the day, because they can indicate the need for a different trading strategy on the same security or can provide an opportunity to profit. Intraday reversals are often the result of news events and company announcements that change the valuation outlook for a specific stock.