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Friday was KEY REVERSAL DAYS in GC Gold and DX - US$ Index

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#1 SemiBizz


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Posted 09 June 2024 - 11:50 AM







If it weren't for AAPL's Developer Day Monday, we would have been down HUGE on Friday.

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#2 fib_1618



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Posted 10 June 2024 - 02:27 PM

Adding my primer on such "range day" events. More on the different type of range days can be found by clicking the following link: https://tinyurl.com/28vc9gby


The Key Reversal: With its birth coming from the futures market, the "Key Reversal" pattern is probably the best known but least understood range reversal bar. Many traders come to the erroneous conclusion that this bar pattern marks the end of the existing trending price move. As with the other three reversal patterns already mentioned, the Key Reversal might extend to more than just a single trading day change in the prevailing price trend, but in no way is this the strict technical expectation within this family of indicators.
Unlike the previous three range days mentioned, there are very specific qualifications that separate this price bar from being that of a simple reversal bar and that of being one of "key" to the existing price trend sequence.

These differences include:
1) Since the "Key Reversal" is a futures market related indicator, the most important characteristic of such a pattern is that in a rising price trend that a "life of contract" high must be made with a lower close than that of the previous day's session. At the same time, a Key Reversal Low would see a "life of contract" low with a higher close. This important component of this range day, the "life of contract" extreme, is what separates it from being one of "Key" than that of being a simple reversal pattern of trend. It's also important to understand that a Key Reversal need not be an "Outside Range Day", only that it needs to close lower than the previous trading day's settlement price to qualify as such.
2) Since the average range of the prior price bars tend to expand during such occurrences, higher than average volume will accompany Key Reversal bars. So if trading volume is average or low, this would suggest that a simple price reversal of trend is occurring and it's not to be classified as being as a "key" point to the overall price structure.
3) Like simple reversal patterns, Key Reversals take place because those who have been on the wrong side of the market are finally giving up. This situation of closing positions and moving to the sidelines results in declining open interest for the contract being traded. So if open interest expands during such a range day, it's more than likely not a "Key Reversal" but one of a simple pause in the prevailing trend.
Because of the components outlined above, a "Key Reversal" happens quite rarely, and the importance of such a pattern increases the likelihood of an important price high (or low) if this same reversal pattern happens in more than one time period sequence (for example, daily and weekly).

Edited by fib_1618, 10 June 2024 - 02:28 PM.

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