What's a key reversal?

JohnLansing answered 5 months ago …

A key reversal signifies possible reversal of the current downtrend to a new uptrend. The key reversal signal develops after a prolonged rally or reaction. It's a pattern that indicates a short-term outlook – that's important to note.

The key reversal works well for traders who are looking for clear entry and exit points into the overall market or particular stock names but again, they aren't normally appropriate as signals for long-term investors unless viewed as monthly bars.

Just remember that key reversals can either be bullish or bearish depending upon the direction of the inbound trend. When the inbound price trend is up and a key reversal is identified, taking a short position or selling a long position is recommended.

The reverse is true: If the inbound price trend is down, when a key reversal is spotted, taking a long position or closing a short position is the best course of action.