Price Action
Reversal
A change in direction: the side that was in control gives it up. Candlestick reversal patterns are only signals at an extreme — in the middle of a range they are noise.
In practice
After a 200-pip uptrend, EUR/USD prints a bearish engulfing candle right at a known resistance level. That is a reversal signal worth acting on. The same engulfing candle appearing in the middle of the move, with no resistance nearby and the trend still intact, is just a pause.
Why it matters for traders
Reversals are where the largest moves begin, but they are also the most faked pattern in trading, which is why context — an extreme, a level — is everything. Treating every reversal candle as a signal burns an account; treating only those at key levels as signals is a real strategy.
Common pitfall
The pitfall is treating every reversal candle as a signal, especially mid-move where most are just pauses. Reversals are only tradable at extremes — after an extended move and at a key level — where the prior side is exhausted and opposition has arrived. Without that context, reversal patterns fail constantly. Demand a location and confirmation before acting; otherwise you are trading every wiggle and burning the account on noise that looks like a turn.
Lessons that use this term
- Hammer and Inverted Hammer
The two bullish reversal candles that appear at the bottom of a move.
- Piercing Line and Dark Cloud Cover
The halfway reversal: when the second candle reclaims more than 50% of the first.
Related terms
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