7. THE KEY REVERSAL DAY

Another price formation is the key reversal day. This minor pattern often warns of an impending change in trend. In an uptrend, prices usually open higher, then break sharply to the downside and close below the previous day’s closing price. (A bottom reversal day opens lower and closes higher.)

The wider the day’s range and the heavier the volume, the more significant the warning becomes and the more authority it carries. Outside reversal days (where the high and low of the current day’s range are both wider than the previous day’s range) are considered more potent.The key reversal day is a relatively minor pattern taken on its own merits, but can assume major importance if other technical factors suggest that an important change in trend is imminent (See Figure 7-1).