Reversal

A turn in the structure a trend is described by. An upward move is conventionally read as a sequence of higher highs and higher lows; a reversal is the point at which that sequence stops and the opposite one begins. Defined this way the term is about structure rather than about any single bar, which is why it is not interchangeable with a large move in the other direction: a violent day inside an intact sequence has reversed nothing.

Identification in practice uses several conventions, and they do not agree. A break of the structure itself, a close beyond a trend line, a moving average crossover, a completed formation such as a head and shoulders, and single bar formations at an extreme are all used, each with its own confirmation rule about closes, retests or volume. The same chart can therefore be reversing under one convention and merely retracing under another, at the same moment, with no way to adjudicate between them at the time.

That is the difficulty the word cannot escape. A reversal is defined by what follows it, so it is confirmable only after enough has followed to make the claim redundant, and until then it is indistinguishable from a retracement. Practitioners disagree about identification so persistently that published tests of reversal formations are difficult to compare with one another, since each encodes a different rule for deciding when one has occurred.