Reversal

Reversal

A sudden change in the price direction of a stock, index, commodity or derivative security. Also referred to as a "trend reversal", "rally" or "correction".

Notes:

A reversal can be a positive or negative change against the prevailing trend. Technical analysts watch for these patterns because they can indicate the need for a different trading strategy on the same security.

For example, if a technical analyst holds stock ABC and notices a reversal pattern, he or she may want to consider closing his/her existing long position and assuming a short position to capitalize on the potential downward movement of the stock's price.

See also: Dead Cat Bounce, Derivative, Index, Pattern, Stem The Tide, Technical Analysis, Trend, Trend Analysis

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Reversal

Turn, unwind. For convertible reversal, selling a convertible and buying the underlying common, usually effected by an arbitrageur. For market reversal, change in direction in the stock or commodity futures markets, as charted by technical analysts in trading ranges. For options reversal, closing the positions of each aspect of an options spread or combination strategy.