What an island reversal is
An island reversal is a chart pattern where a cluster of bars is cut off from the rest of the chart by a gap on each side. A gap is a price range with no trading between the close of a bar and the open of the next. On a chart, the cluster looks like an island separated from the surrounding price action.
It appears among reversal patterns, which mark a possible change in the direction of a trend. A bearish island forms at the top of an uptrend. A bullish island forms at the bottom of a downtrend. For the gap categories behind it, see gap types.
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The structure
A bearish island has these parts:
- Prior trend: price rises into the area.
- Entry gap: price gaps up above the previous bar's high.
- Island cluster: price trades for a while above that gap. This can be a single bar or many bars.
- Exit gap: price gaps down below the cluster's low and leaves the island isolated.
A bullish island is the mirror image: a gap down, a cluster below, then a gap up.
Drawn example (bearish island, no real prices)
The empty space on the left and right of the cluster is the gap zone. No bars from outside the island touch it.
Identification rules
Traders usually look for all of these before calling a pattern an island reversal:
- A clear trend leads into the area. Without a prior trend, nothing is being reversed.
- The entry gap and the exit gap overlap roughly the same price zone.
- Neither gap is filled while the island forms. A gap is filled when price trades back through it.
- The exit gap points against the prior trend.
- Volume, where it is available, often rises on the exit gap. In spot forex, platforms show tick volume only, so this check is weaker there.
Gaps are rare on most forex pairs because the market trades around the clock during the week. Island reversals show up more often after weekend opens and on instruments with session breaks, such as stock indices and individual shares.
The measured-move convention
Many traders project a reference level by measuring the height of the island cluster, from its high to its low, and projecting that distance from the edge of the exit gap in the direction of the exit gap.
This is a drawing convention. It does not forecast where price will go. Price can stop short of the level, pass it, or reverse at once. Traders who use it treat it as a reference point for planning, not a target the market owes them.
Invalidation
A common rule is that the pattern is invalidated when price fills the exit gap and trades back into the island. For a bearish island, that means price closes back above the bottom of the exit gap. Some traders use the far side of the island, its high or low, as a stricter line.
Where to place a stop relative to these levels is a risk decision, covered in risk management.
Common false breakouts and failure modes
- Quick gap fill: price gaps away, then closes the exit gap within a few bars. This happens often in thin markets and around news.
- No real trend before it: an island inside a sideways range is often noise.
- Data artefacts: different data feeds and session settings can create or hide gaps. An island on one platform may not exist on another.
- Event gaps: gaps caused by a news release or a weekend headline can reverse when the market settles.
- Hindsight drawing: an island is only confirmed after the exit gap. Labelling a cluster an island in advance is guessing.
Leveraged CFD and forex trading can lose money fast, and a pattern that looks clean can fail without warning. No chart pattern has a fixed success rate.
Related shapes include the double top and head and shoulders. The full list is on chart patterns, and technical analysis covers the basics behind them.
Frequently asked questions
Does an island reversal need volume confirmation?
It is not required. Many traders give more weight to an exit gap on higher volume. In forex, only tick volume is available, so the check means less.
How many bars can the island contain?
There is no fixed rule. It can be a single bar or a long cluster. What matters is that both gaps stay unfilled while it forms.
Is the measured move a price target?
No. It is a convention for marking a reference level, not a prediction.
Why do I rarely see island reversals on forex charts?
Major currency pairs trade continuously during the week, so gaps mostly appear at the weekend open. Instruments with daily session breaks show gaps more often.
What usually invalidates the pattern?
Price filling the exit gap and trading back into the island. Some traders wait for price to move past the far side of the island before treating the pattern as invalid.