# Island Reversal

Island Reversal is an indicator on [Vela](https://vela.luxalgo.com/chart), our next-generation charting platform, written in Pine Script®.

Detects island reversal patterns (bars stranded between two opposing gaps) and marks the bullish or bearish turn they imply. Trend, volume, and range filters, including an R-squared horizontality test and a volatility bound, restrict detection to the cleanest formations. For traders timing exhaustion turns at trend extremes.

- Indicator in the LuxAlgo Library, by LuxAlgo, published Nov 5, 2025.
- Access: free.
- Concepts: [Island Reversal](https://www.luxalgo.com/library/concept/island-reversal/) (primary)
- Open on Vela: https://vela.luxalgo.com/chart?pineScriptCodeId=cmpwn2q9p003svhsg7pbm5utw
- Page: https://www.luxalgo.com/library/indicator/island-reversal/

**Island Reversal** hunts one of charting's most distinctive turning patterns: a cluster of bars marooned by a gap on either side, floating above or below the trend that produced it. The [island reversal](https://www.luxalgo.com/library/concept/island-reversal/) reads as abrupt exhaustion (the market jumped to an extreme, stalled, then jumped back the other way), and this build detects the bullish and bearish versions automatically, with filters that keep only the cleanest formations.

## How to Trade the Island Reversal?

- **Bearish island**: after an uptrend, price gaps up, consolidates, then gaps back down. The stranded bars mark a potential top.
- **Bullish island**: the mirror image at the end of a downtrend (a downside gap, a pause, then an upside gap).
- **Trend filter on**: only top islands in uptrends and bottom islands in downtrends qualify; raising Trend Length demands larger preceding moves.
- **Volume filter on**: requires more volume inside the island than in the prior trend, consistent with participation swelling near turns.

The two range filters shape the island itself. The Horizontality Filter runs a linear-regression R-squared test to demand genuinely sideways trade within the pattern, while the Volatility Filter bounds how wide the island's range may be relative to long-term volatility. Tighter values keep only compact, decisive islands.

## Island Reversal Settings

- **Trend Filter** and **Trend Length**: toggle trend-aware detection and set how large the preceding trend must be.
- **Volume Filter**: toggles the island-versus-trend volume requirement.
- **Horizontality Filter (R²)**: toggle plus threshold for how flat the island must trade.
- **Volatility Filter**: toggle plus multiplier bounding the island's range.
- **Style**: bullish and bearish colors with adjustable transparency.

## Frequently Asked Questions

### Should I run all the filters at once?

Each filter narrows detection, so stacking them yields rarer but cleaner signals. Loosen or disable filters when studying smaller timeframes or thin markets, and tighten them when you only want textbook formations at major extremes.

### What role do the gaps play in the signal?

They are the pattern: the island exists only because price gapped away and then gapped back, leaving anyone who chased the extreme cut off on the wrong side. To study that second, exhausting leg on its own, look at the [Exhaustion Gap](https://www.luxalgo.com/library/indicator/exhaustion-gap/) tool, which tracks it in isolation.

### How can I access the Island Reversal indicator?

It is included free in the LuxAlgo Library. Loading it into Quant, our coding agent, from this page makes it easy to review detections on markets that gap often. You can also copy the source code from this page and run it anywhere Pine Script® runs.

## Related indicators

- [N Bar Reversal Detector](https://www.luxalgo.com/library/indicator/n-bar-reversal-detector/) (Key Reversal): markdown at https://www.luxalgo.com/library/indicator/n-bar-reversal-detector.md
- [Bart Pattern](https://www.luxalgo.com/library/indicator/bart-pattern/) (Chart & Candlestick Patterns): markdown at https://www.luxalgo.com/library/indicator/bart-pattern.md
- [Head & Shoulders](https://www.luxalgo.com/library/indicator/head-and-shoulders/) (Chart & Candlestick Patterns): markdown at https://www.luxalgo.com/library/indicator/head-and-shoulders.md
- [Wolfe Wave Detector](https://www.luxalgo.com/library/indicator/wolfe-wave-detector/) (Wolfe Waves): markdown at https://www.luxalgo.com/library/indicator/wolfe-wave-detector.md
- [McDonald's Pattern](https://www.luxalgo.com/library/indicator/mcdonalds-pattern/) (Double Top/bottom): markdown at https://www.luxalgo.com/library/indicator/mcdonalds-pattern.md
- [Diamond Top/bottom](https://www.luxalgo.com/library/indicator/diamond-top-bottom/) (Chart & Candlestick Patterns): markdown at https://www.luxalgo.com/library/indicator/diamond-top-bottom.md
- [Horns Pattern Identifier](https://www.luxalgo.com/library/indicator/horns-pattern-identifier/) (Rare Reversal Patterns): markdown at https://www.luxalgo.com/library/indicator/horns-pattern-identifier.md
- [Half Cup](https://www.luxalgo.com/library/indicator/half-cup/) (Rounding Top/bottom): markdown at https://www.luxalgo.com/library/indicator/half-cup.md

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Source: https://www.luxalgo.com/library/indicator/island-reversal/ (LuxAlgo Library). Free to use with attribution: https://www.luxalgo.com/library/license/