Reverse/Reversal

A reversal is a change in the direction of a price trend. If a stock has been climbing for a while and then turns around and starts falling — and keeps falling rather than just pausing — that's a reversal. The same idea works in the other direction: a stock that's been sliding lower turns and starts a sustained climb.

The key word is "sustained." Price never moves in a straight line; it wiggles up and down constantly even within a larger trend. A reversal is meant to describe a genuine change in the underlying direction, not just one of those wiggles. Traders look for signs that the change is real: the price breaking through a level that had been holding as a floor or ceiling, a shift in the pattern of highs and lows (for example, a rising stock that had been making higher highs and higher lows now makes a lower high and a lower low), or a change in the balance of buying and selling pressure that shows up in volume or order flow.

The nuance that trips people up is separating a reversal from a "bounce" or "pullback," which is a short-lived move against the trend that then resolves back in the original direction. A bounce might look identical to a reversal for the first few minutes or even hours — both start with price turning the corner. The difference only becomes clear afterward, once you can see whether the new direction actually continued or whether the original trend reasserted itself. Because of this, calling something a reversal in real time is always somewhat provisional; traders use tools like support and resistance levels, trendlines, or momentum indicators to estimate the odds, but there's no mechanical test that confirms a reversal the instant it starts.

This ambiguity is also why reversal trading is considered higher-risk than trend-following: you are betting on a change in direction before it's confirmed, so if what looked like a reversal turns out to be a bounce, the trade moves against you as the original trend resumes.