Page 49 - NEW FOREX FULL COURSE

FOREX TRADING COURSE FOR BEGINNERS

For a key reversal bottom, the characteristics are the same. The selling climax has to have heavy
volume with a wide trading range which first breaks to new lows, rebounds above the previous
day's high and closes higher. Frequently, the highest trading volume and the highest or lowest
price of the year will be set on a key reversal day.

An island reversal takes gaps to the extreme. It receives its name for obvious reasons. An island
reversal can be only one day or a few days of trading above (or below) the previous and following
day's trading activity The action is isolated by gaps on both sides. Thus, it leaves a day or a few
days of price action surrounded by empty space.

The Japanese yen chart shows two island reversals. The 1-day island top of marked the climax of
a bull move and the beginning of falling prices. The 3-day island reversal bottom in mid-May
signaled a halt to the decline and the Island reversal beginning of a bear market rally.

Island reversals occur less frequently than key reversals. The exhaustion gap which marks the
beginning of the island reversal will remain unfilled for a lengthy period because the island
reversal is usually the climax to an existing trend.

Technical analysis is not an absolute tool. Because it is more an art than a science, individuals will
interpret formations and trends differently. "Thin markets" — those with very low open interest
and trading volume — will create false technical signals. These markets, as well as deferred
contracts which also have low open interest, should be avoided by inexperienced traders.

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