Island Reversal

An island reversal is a combination of a continuation gap and a breakaway gap in the opposite direction. An island reversal looks like an island, separated from the rest of price action by a gulf in which no trading took place. It begins as a continuation gap, followed by a compact trading range with high trading volume. Then prices gap in the opposite direction and leave behind an island of prices. This pattern occurs very seldom, but it marks major reversal areas. Trade against the trend that preceded an island.

Gaps can serve as support and resistance levels. If greater volume occurred after an upside gap, it indicates very strong support. If greater volume occurred before the gap, then support is less strong.