Reversal
A reversal is a durable change in the direction of the prevailing trend: an uptrend rolling over into a downtrend, or a downtrend turning up. It is a Trend concept. The Library holds 7 implementations, each one ready to run on Vela.
Top Reversal indicators
The top custom implementations, built on the original standard Reversal formula.
7 total
From studying Reversal to trading it: open the top implementation below on Vela, then build a strategy on it with Quant and backtest it.
What is a Reversal?
A reversal is a durable change in the direction of the prevailing trend: an uptrend rolling over into a downtrend, or a downtrend turning up. In structural terms the trend's swing pattern fails first. An uptrend stops printing higher highs and higher lows, breaks its most recent higher low, and begins building the opposite sequence. That is what separates a reversal from a pullback, a counter-move the trend later absorbs.
Reversals are usually a process rather than an event. A common anatomy runs: momentum fades against price (divergence), the trend makes a final climactic or failed push, often sweeping an obvious high or low (liquidity sweep), and then structure breaks the other way, a change of character in modern structure grammar. Candlestick signals such as engulfing bars appear earliest but carry the least weight alone; structural confirmation arrives later but means more.
Reversals matter because they bracket every trend trade: catching one early offers the largest repricing available, and missing one turns winners back into losers. They are also where most counter-trend attempts die, since strong trends generate failed reversal signals continuously. That asymmetry is why experienced traders demand confluence and a defined invalidation before calling a turn, and why the old line that the trend is your friend until it ends survives as a warning.
How to identify a Reversal
No single bar announces a reversal. The read is a sequence: trend evidence deteriorates, then opposite structure appears.
- 1Establish what is being reversed: a clear sequence of higher highs and higher lows, or the mirror image. In a sideways range there is no trend to reverse, only rotation between the extremes.
- 2Watch for deterioration: momentum divergence at the newest extreme, shrinking follow-through after breakouts, climactic volume, or a sweep of an obvious high or low that immediately fails.
- 3Require the structural break: price closing through the most recent counter-swing, in an uptrend the last higher low. Until that break, the move is still a pullback by definition.
- 4Track the retest: reversals commonly return to the broken area before extending. A rejection there strengthens the case; a reclaim of the old trend's extreme invalidates it.
How traders use it
- As a counter-trend entry model: exhaustion evidence plus a structural break plus a meaningful location (a higher-timeframe support level or supply zone) stacked into one setup, sized conservatively because failure is common.
- As an exit or de-risking trigger for trend followers: the same structural break that starts a reversal trade tells a holder of the old trend that the easy portion is over.
- As the backbone of Smart Money Concepts sequencing: a sweep of liquidity, then a break of structure in the new direction, then entry on the retracement into the origin of the move.
- As a filter discipline: taking reversal signals only at pre-marked levels and ignoring them mid-range, which removes many failed counter-trend attempts before they are ever taken.
Reversal vs look-alike events
Pullback: A pullback moves against the trend and then the trend resumes; a reversal moves against the trend and keeps going. The two are indistinguishable early on, which is why the break of the prior counter-swing is the usual dividing line.
False Breakout: A false breakout is a single failed excursion beyond a level that snaps back. It often seeds a reversal, but it is one event; a reversal is the full directional change that may follow it.
Change of Character: CHoCH is the first structural break against the prevailing trend, the earliest chart evidence of a possible turn. The reversal is the completed outcome; plenty of CHoCHs resolve into ranges instead.
Trend Exhaustion: Exhaustion is the fading of trend momentum, a precondition rather than a turn. An exhausted trend can consolidate sideways and then continue; a reversal requires the opposite trend to actually begin.
More Reversal implementations
Reversal FAQ
Turn Reversal into a trading strategy.
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Browse this familyTrend104 concepts mapped · 104 in the Library
- Adaptive-lookback MA
- ADX / DMI System
- Alligator
- ALMA
- Anchored MA
- Andrews' Pitchfork
- Aroon
- ATR Trailing Regime
- Bessel Filter
- Breakout
- Butterworth Filter
- Chande Kroll Stop
- Chandelier Stop
- Chebyshev Filters
- Climactic Moves
- Continuation
- Coral Trend
- Correlation Trend Indicator
- Death Cross
- DEMA
- Displaced MA
- Donchian Trend Rules
- Dynamic S/R Via MA
- Ehlers Instantaneous Trendline
- Ehlers SuperSmoother
- Elastic Volume-weighted MA
- Elliptic Filter
- EMA
- Fan Principle
- FRAMA
- Gann Box
- Gann Fan & Angles
- Gann HiLo Activator
- Gann Method
- Gann Square of 9
- Gaussian Filter
- Geometric MA
- Golden Cross
- Guppy GMMA
- Halftrend
- Harmonic MA
- Higher-timeframe Trend Filter
- HMA
- Ichimoku Signals
- Ichimoku System
- Ichimoku Theories
- JMA
- KAMA
- Kaufman Efficiency Ratio
- Laguerre Filter
- Linear-regression Channel
- LSMA
- MA Envelope
- MA of MA
- MA Ribbon
- MA Slope Filter
- MAMA/FAMA
- McGinley Dynamic
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- Moving Average Crossovers
- NRTR
- Order-statistic Filters
- Parabolic SAR
- Parallel Channel
- Polynomial Regression Band
- Pullback
- R-squared Trend Fit
- Rainbow MA Stack
- Random Walk Index
- Range Filter
- Retest
- Reversal
- RMA
- Savitzky-Golay Filter
- Sine-weighted MA
- SMA
- Speed Resistance Lines
- Standard-error Channel
- Supertrend
- Swiss Army Knife Filter
- SWMA
- T3
- TEMA
- TRAMA
- Trend Acceleration/inflection
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- Trend Intensity Index
- Trend Magic
- Trend Regime Label
- Trend-quality Composites
- Trendline
- Triangular MA
- UHL Adaptive MA
- Ultimate Smoother
- Vertical Horizontal Filter
- VIDYA
- Volume-adjusted MA
- Vortex
- VWMA
- Weinstein Stage Analysis
- Whittaker–Henderson Smoother
- Windowed FIR Smoothing
- WMA
- ZLEMA
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