Chapter 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. | Chapter 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. Charting Made Easy 25 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 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 . 26 Trade Secrets Chapter 8 PERCENTAGE RETRACEMENTS Market trends seldom take place in straight lines. Most trend pictures show a series of zig-zags with several corrections against the existing corrections usually fall into certain predictable percentage parameters. The best-known example of this is the fifty-percent is to say a secondary or intermediate correction against a major uptrend often retraces about half of the prior uptrend before the bull trend is again resumed. Bear market bounces often recover about half of the prior downtrend. A minimum retracement is usually about a third of the prior trend. The two-thirds point is considered the maximum retracement that is allowed if the prior trend is going to resume. A retracement beyond the two-thirds point usually warns of a trend reversal in progress. Chartists also place importance on retracements of 38 and 62 which are called Fibonacci retracements. Charting Made Easy .
