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Island Reversals


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In general terms, island reversal can be defined as a compact trading activity within a range of prices, separated from the move proceeding it; this separation is caused by an exhaustion gap and the subsequent move in the opposite direction occurs as a result of a breakaway gap. (source: wikipedia)
 
 
  
 
 
 
 
The cup and handle formation (also called the cup with handle formation) is a bullish chart pattern that is defined by a chart where a stock drops in value, then rises back up to the original value, then drops a small amount in value, and then rises a small amount in value. (source: wikipedia) 
 
 
 
 
 
 
Euro Short  http://bit.ly/ue3o2Z  
 
 
Island reversals are created as markets breaks into a extreme high or low, and being unable to sustain by seeing the market then gap further away, in turn leaving the extreme prices left behind on an 'island'. What this does, for example in US Dollar chart seen above as UUP,  with the market breaking down, then failing to hold at those levels and gapping higher, the market leaves traders stuck on that island who the market is telling them they were wrong.  This forces them to squeeze out and in turn tests upside resistance levels.
 
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Stewart S. Solaka

ChicagostockTrading 
Sr. Futures Trader

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Stewart Solaka is a professional derivatives trader, noted media analyst and entrepreneur. Chicagostock Trading offers an exclusive daily futures report with day and swing trade strategies. For more information please visit: www.chicagostocktrading.com

 

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