List of Financial Market Terms

Island reversal is a technical analysis tool used in day trading, stock trading, futures trading, and options trading. There are two types of Island Reversals.

  • Island Top Reversal - Stock gaps up, stock consolidation (creating the "island), stock gaps down. This is a bearish formation indicating an uptrend reversal.
  • Island Bottom Reversal - Stock gaps down, stock consolidation (creating the "island), stock gaps up. This is a bullish formation indicating a downtrend reversal.

Take a look at an Island Top Reversal example in QCOM:

qcom island reversal 1

As you can see there is an uptrend in tact which is followed by a bullish gap, consolidation, then a gap down.  The island is the consolidation area.  It is called an "island because there is no price action attached to the consolidation period as a result of the gaps.

Here's a close up of this same Island Top Reversal.  The gap up is the purple oval, the gap down is the blue oval.

qcom island top reversal 2

Related terms: Gap Fill, Bullish Gap, Bearish Gap, Uptrend, Downtrend

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