Island Reversal

An island reversal is a small group of bars cut off by a gap on the way in and a gap on the way out, in opposite directions. A top island gaps up into a high area, stalls, and gaps down, leaving the highs isolated. A bottom island gaps down, stalls, and gaps up.

Two gaps with no overlap of price between the island and the bars before and after it. The island can be one bar or several. Without a gap on both sides, it is an ordinary reversal, not an island.

An island bottom says the market rejected the lower prices so completely that it did not trade back through them. The gap up is the confirmation. Risk is under the island.

An island top says the spike high was abandoned. The gap down is the confirmation. Risk is above the island.

Calling a gap and a later reversal an island when price traded back through the gap and closed it.

Many futures and liquid forex markets rarely gap. The pattern belongs mostly to cash equities and to sessions with a real overnight break. Do not invent gaps that the chart filled.