TREND REVERSAL

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A reversal is a change in the direction of a price trend which can be a positive or negative change against the prevailing trend. A reversal on the other hand can be referred to as a trend reversal, a rally or a correction.

Simply put, a reversal occurs when a stock changes trend and starts to move in the opposite direction of previous price action. Psychologically, reversals can be incredibly difficult for even the most experienced investors to react to. This is because in the early stages of a reversal, the market still shows many indications of a continued move in the original direction.

However, the sequence for the reversal is not always the same. Following a downtrend, the price may not make a higher high to spark the reversal. Instead, the price makes a higher low. The higher low indicates the trend may be in trouble. When the price starts to move higher again, it signals the downtrend is quite likely reversing.

Investdata Academy

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