In plain English
What Reversal means
A reversal is bigger than a short-term pause or pullback. It means the market stops behaving like it has been and begins moving in the opposite direction in a way that matters to the larger trend. Technical traders look for price structure, momentum, and failed prior swings to help identify reversals, but the signal is not certain in advance.
Why it matters
Reversals can change the setup for entries, exits, and stop placement because the original trend thesis may no longer apply. They are important in forex and CFD trading, where a mistaken assumption about trend continuation can be costly. A confirmed reversal often requires more than one candle or one level break; it usually needs follow-through.
Example
If a currency pair has made higher highs and higher lows for several weeks, then breaks below a major swing low and continues lower for several sessions, that may be a reversal. Simplified example: the prior uptrend ended and a new downtrend began.
Quick answers
Common questions
How is a reversal different from a pullback?+
A pullback is a temporary move against the trend. A reversal is a lasting change in the trend itself.
Can reversals happen after false breakouts?+
Yes. A failed breakout can be one of the patterns that sometimes leads to a reversal.
Sources