All language subtitles for 7. Island Reversals

So if we look at this island here, you might say, wow, that's a nice looking island that has a nice

beach, be a nice place to relax on.

But what if I told you there was nobody there with you and there was no food or water and nobody was

coming to help you?

It's a great place to be.

Right.

And that's what island reversals are.

A lot of times.

They're not a great place to be, but they can be a very strong indicator to show what's going to happen

next.

So they're something they're rare.

They rarely occur.

But when they do, they're very, very strong indicator and could provide a great, great opportunity.

So if you see an island reversal, you really want to pay attention to it.

And kind of what with the ah, is there it's an exhaustion gap, you know, where it's been exhausted.

As we learn about and it's going to have this gap followed immediately by a breakaway gap in the opposite

direction the next day.

So what you're finding is that whichever way it's going, that breakaway gap, the next day you're fighting

a last trader.

You kind of finds there on an island by themselves and they have to start adjusting their price either

up or down to kind of get back in with a step with people who are willing to buy or trade or buy and

sell or trade with them and are, you know, basically looking at maybe a different way the trend is

going to go.

So let's take a look at these island reversals and how to recognize them in a more understandable graphic

manner.

So densify these island reversals, you're going to need an exhaustion gap.

Right?

And so we know from day 14 of the 15 that we are looking at, possibly we're looking at an exhaustion

gap.

We saw that our volume was not going up.

We should have had a real spike in volume there actually went down in terms of our volume between day

14 and 15.

And so we know we're running out of steam and that is our exhaustion gap.

And then what will happen is you'll you'll now start seeing overlapping bars and it might start going

sideways, might even start going down or, you know, basically the trend has been, you know, basically

broken at this point.

And it's not trending upward anymore, as in this example.

But sometimes what happens is the island reversal.

As we mentioned, you have an exhaustion gap that is immediately followed.

It's immediately followed by a big jump up in price.

You know, that looks like it's another runaway gap.

The class we have to find that it would be the next day.

As far as there being a true island reversal, sometimes folks will say, oh, it might be you might

have one or two trading periods in between.

But really, the classic way to look at is between, like in this example, 15 and 16, you're going

to have these two kind of back to back gaps.

So you have your exhaustion gap, low volume, and then the ocean that just keeps going up higher.

There's a whole another big gap hole, another big let's try to push this even higher.

And that's where you might see, you know, even lower volume, let's see, coming on that bar in between

those volume bars where you could see even lower volume because it's really is truly exhaustive that

you're really on an island.

You're the last person out there trying, trying to buy.

And you might have a couple of sellers out there, but it's really already post the exhaustion phase.

And really where you can tell is you can start looking for that low volume on that exhaustion gap.

Right.

So there's low volume that tells time to sell.

There's high volume on a runaway gap that tells you to buy.

Right.

We saw a previously on day 12, that runaway gap where it's time to buy, but low volume island reversal

is going to you're going to have that low volume on the day sixteen in this example.

And then the time to sell or buy depends on the island.

Right?

You're waiting for the island to form.

So we don't really, truly know the sixteen.

We need a D seventeen to show what's going to happen.

And then what'll happen is then on day seventeen, you know, there's going to be some high volume is

when will you consider your island reversed?

You've got these low volume days of of exhaustion gaps, the island forming and then the reversal going.

The opposite way is happening where there's a lot of volume, it's going to go the other way.

So the time to sell or buy depends on the island, as I mentioned.

So if we look on the left here, you can see that this was an upward trend that was exhausted, then

jumped up from 15 to 16 to an island.

And then we're waiting to see what happens in the seventeen.

And that's really what's going to confirm that we're on an island that it didn't continue going up or

something like that, where it might have actually been more of a runaway gap.

It was actually a true island after an exhaustion.

And you can see how now prices have come down and there's another gap in between.

But a lot of volume now people are really selling and they're trying to get out of it as the example

of the left side.

So that's now created a new downward trend and an island reversal.

So it's time to sell, get out book the profits that we've made from day one through sixteen.

You know, we're staying the whole time or fourteen or however, we've stayed long, but we're in the

security right now.

We want to get out.

Right.

By the same token, if you look on the other side where if you like, at thirteen, fourteen, fifteen,

you know, things have been trending, we haven't bought yet because it's in a downtrend.

There's there's an exhaustion gap from a previous runaway gaps and breakaway gaps that have led to a

strong trend going downward.

Prices are going down.

We see the exhaustion gap between the 14 and 15, we see day 16 following that exhaustion gap going

out by itself on an island.

We're going to watch to see what happens on day 17, what happens on day 17.

The price goes back up significantly.

We see that high volume.

We see that we have an island reversal.

But actually it's going in the other direction and we want to buy on that.

Now we're seeing a new upward trend that is forming.

And this would be a great buy signal, you know, kind of confirming once that volume that we have an

island reversal going in the other direction.

So the key point is you don't know if it's an island until the second gap occurs.

Its day 17 in this example, you might see it jump out way ahead after an exhausting gap and kind of

guess like, oh, is that a reversal?

And it could be.

But you really need to look at that volume and you really need to confirm with the following day, others

will guess based on the volume.

If it's a low volume, they might say, oh, a 16 hour volume was low.

And then then we're going to guess and say that's an island reversal.

And that's not a bad guess, actually.

But to be a true island Reverso, you're going to need that 17 in this example.

See, there's high volume there that really established that, yes, things have changed.

There's a definite change and now a new trend is forming.

So to really look at a classic completed island, you'll have to have an exhaustion gap with low volume,

followed by an island gap with low volume and then a sense a breakaway gap, high volume going in the

opposite direction, forming that island.

And you don't want to be on the island.

You get either off the island or or get on the new trend, depending which way it's headed.

So those are island reversals.

They're actually very rare occurrences.

But when you if you see it, it kind of recognized in the chart pattern, really watch that closely,

because they are very, very strong indicators, probably because they are so rare and there's so many

requirements behind it.

Right.

With the exhaustion gap, you know, all that coming in, the strong trends coming beforehand, either

up or down.

So watch island reversals and be ready to strike.

Nothing's perfect, of course, but this is a good, good, strong indicator.

And to check those volume levels, to kind of confirm what you're what you're seeing is what's truly

happening.