Trading Island Reversal

Island Reversal

MarU3

V"

Gap ll

Source: TradeStatior.

18.00

17.00

16.00

15.00 i

14.00 i

13.00

9.00

AprD3

MayTI3

Jiiii-03

Trading Island Reversal

The example above illustrates an Island Reversal pattern in Broadcom (BRCM) daily chart. In March 2003, BRCM gapped down at $10 price level and traded for few bars lower. Late April 2003, BRCM reversed its downtrend and traded higher with gap closing above the previous downside gap. This scenario created an "Island Reversal" pattern and provided a "long" trade opportunity.

1. Enter a "long" trade above the Gap bar's high at $ 11.

2. Place a "stop" below the low of the Gap at $9.75

3. Place a "target" near a major "swing high" prior to the downside gap.

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