Island Reversal
Last updated
Last updated
An Island Reversal forms when price gaps away from its previous range, trades in isolation, then gaps back in the opposite direction. This leaves a cluster of candles “stranded” from the main price action, hinting at a swift trend change.
Gap on Both Sides. Look for a gap where price jumps away, then another gap returning to the old price region.
Isolated Bars. The candles in between those gaps form the “island.”
Quick Shift. Watch for a sudden change in momentum once the second gap appears.
Entry: consider entering when price fills the gap back toward the old range. That move often signals the reversal is underway.
Stop: place stops near the highest or lowest point of the island to manage risk.
Target: look to previous support or resistance levels for a logical exit.
Volume often spikes around both gap days, so keep an eye out.
Confirm with other signals, like moving average crosses or momentum indicators.
Island Reversals don’t appear often, so double-check you have a real gap on each side.
Pick a market with noticeable gaps in historical data. Search for a zone where price gapped up (or down), then gapped back in the opposite direction, forming a small group of isolated candles. Mark those gaps, note where you’d enter and place your stop, then move forward in your backtest to see how the trade would have played out. Compare results across a few markets or timeframes.
