KEY REVERSAL

Key Reversal requirements:
1. The Open must be below yesterday's Close,
2. The day must make a new Low,
3. The Close must be above yesterday's High.
4. Volume must be significantly higher than the prior day.
5. The signals are most reliable if they occur after a strong trend.


Edwards and Magee (authors of the highly regarded classic text -- Technical Analysis of Stock Trends) state that key reversals are short-term trading patterns only.
Probabilities of Key Reversals continuing the next day.
Note: for Downward Key Reversals The probability that the next day closing price is lower than the downward Key reversal Close has been 49% for Down Key Reversals. No data on upward Key Reversals, but the downside would suggest today a toss up on a positive close.

Key Reversals reflect changes in investor psychology that have a very short-term influence on future prices - typically less than 10 bars.
They are normally not suitable as signals for long-term investors unless viewed as monthly bars.
Our third day candle, this next Monday, will be the most important for determining if this turn is powerful. It will need to close over today close and high for yesterday to have meaning.
That begs the question what about tomorrow, that can be either up, or down, as long as we don't take our yesterday's Key Reversal low.
The large change in position of the opening and closing prices signifies that one side of the market has lost complete commitment and control has shifted to the other side of the market.

You can find other key reversal candlestick formations in the Japanese Candlestick literature

Today it is most likely that we get a good pullback from Thursday's close in the morning and a negative close for the day.
The real test of the markets will be on Monday, and can it take out Thursday's high.

A positive Key Reversal Day consists of the following attributes.



1. It must occur as the latest in a decline of at least several days.

2. It must carry into new low ground for that decline.

3. It must then rally to a level higher than the previous close. The higher the better.

4. It must close with an advance for the day.

5. It must close in the upper half of its own range for the day.

6. Volume must increase markedly.

KEY REVERSAL

A positive Key Reversal Day consists of the following attributes.



1. It must occur as the latest in a decline of at least several days.

2. It must carry into new low ground for that decline.

3. It must then rally to a level higher than the previous close. The higher the better.

4. It must close with an advance for the day.

5. It must close in the upper half of its own range for the day.

6. Volume must increase markedly.