Reversal
A change of direction where the existing trend structure breaks and the opposite side takes control.
Full explanation
A reversal is a genuine change of control, not simply a pullback. In an uptrend the first warning is usually a failure to make a new high; the reversal itself is confirmed when price closes below the previous higher low and then starts making lower highs.
Reversals are harder to trade than continuations because they require acting against what the market has been doing. They also attract early entries: many attempted reversals turn out to be pullbacks within an intact trend.
Reversals often begin around a catalyst — a major economic release, a central-bank decision, or a decisive rejection at a long-standing key level.
Why traders watch it
Distinguishing a pullback from a reversal is one of the most costly judgements in trading. Using structure — the sequence of highs and lows — replaces opinion with something observable.
The Trading Plan flags conditions where a reversal is plausible, but it never calls direction; it describes the evidence that would need to appear.
Trading considerations
- Require a broken structure, not just a large opposing candle.
- Reversals attempted against a strong trend fail more often than they succeed.
- Note whether a catalyst explains the change — reversals without one are less reliable.
Educational guidance only — never a trading signal or recommendation.
Related indicators
ATR (Average True Range)
ATR, or Average True Range, measures the average distance a market travels over a chosen number of periods, including gaps. It is a pure volatility reading with no directional bias. Traders use ATR to set stop distances that respect normal noise, to size positions consistently, and to judge whether current conditions are unusually quiet or unusually fast.
Bearish candle
A candle that closes below its open — sellers finished the period in control.
Bollinger Bands
Bollinger Bands are a volatility indicator made up of a moving average with upper and lower bands that expand and contract as market volatility changes. They help traders judge whether price is becoming stretched, identify volatility changes, and support both trend-following and mean reversion analysis.
Breakout
A breakout occurs when price moves decisively beyond a defined level such as a range high, trendline or consolidation boundary. It signals that the balance between buyers and sellers has shifted and can start a sustained move. Breakouts also fail often, so traders look for confirmation through follow-through, expanding range and a successful retest of the broken level.
Bullish candle
A candle that closes above its open — buyers finished the period in control.
Candle
A single bar on a candlestick chart showing the open, high, low and close for one period.