Key reversal

A one bar pattern, named on daily charts long before it was applied to shorter timeframes. The bullish form appears after a decline: the bar trades below the previous bar's low, making a new low for the move, and then closes above the previous bar's close, so everything gained by sellers within the bar is given back before it ends. The bearish form is the mirror image after an advance. The idea being read is a change of control inside a single session rather than across several, which is why the pattern is grouped with the wider family of reversal signals rather than with continuation ones.

The definition is not standardised, and the variation is larger than most sources admit. The loosest version asks only for a new extreme and a close beyond the previous close. A stricter one asks for the close to clear the previous bar's high, which makes the bar an outside bar as well. Stricter again is the outside reversal, requiring the bar to exceed the previous bar's high and low both. Some older texts on futures reserve the name for a bar that opens beyond the previous bar's extreme, which requires an opening gap and therefore cannot occur in a market that trades continuously. A pattern scanner will return a different set of bars for each of those readings, so the definition in use has to be stated before two results can be compared.

The relationship to the candlestick vocabulary is close and often muddled. An engulfing pattern is defined on bodies, the distance from open to close, and says nothing about the wicks. A key reversal is defined on the extremes, the high and the low, and says nothing about where the bar opened. The two frequently mark the same bar and are not the same test, and the same bar is often also a swing low once the bars either side of it have printed.

The trip point is confirmation. The pattern is complete only at the bar's close, so an intrabar shape that looks like one can be undone before the bar ends, and the label is applied to the same bar differently on a four hour chart than on a daily one. Studies of single bar patterns are mixed and depend heavily on the market, the period tested and the exact definition used, so the pattern is best described as a recognised piece of chart vocabulary rather than as an established edge.