In plain English
What Reversal means
A reversal is broader than one down candle in a rising market or one up candle in a falling market. It refers to a change in the prevailing direction that becomes apparent through subsequent price behavior. Analysts may examine changes in highs and lows, breaks of chart-pattern boundaries, momentum measures, or volume where available. None of these methods can establish a reversal with certainty in real time.
Why it matters
The difference between a reversal and a pullback can materially affect risk. A position based on trend continuation may face increasing losses if the market has instead changed direction. Because confirmation usually arrives after at least part of the move has occurred, reversal analysis involves uncertainty and may lag the price change it seeks to identify.
Example
A market has formed higher highs and higher lows for several weeks. It then fails to make a new high, breaks below a prior swing low, and continues making lower highs and lower lows. In this simplified example, the developing sequence supports describing the earlier uptrend as having reversed.
Quick answers
Common questions
What is the difference between a reversal and a correction?+
A correction generally means a countertrend decline or advance after a prior move, without necessarily implying that the larger trend has ended. A reversal specifically means the prevailing trend has changed direction.
Can a reversal pattern fail?+
Yes. Chart patterns are interpretations of past price behavior, not binding outcomes. A market can appear to complete a reversal pattern and then resume its earlier direction, particularly when conditions change quickly.
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