Chart Patterns - V Reversal Patterns

This pattern, also sometimes called a spike reversal, is easy to recognize in retrospect but difficult at the time. Formerly they were not too common in the stock market but they are common in commodity futures markets. With the increased trading of stock index futures, index and stock options we are increasingly seeing V formations in the stock market.

V reversals are quite obviously abrupt reversals of a trend with little prior warning. However, they are very frequently initiated by key reversal days or island reversals following a rapid, runaway trend which may well show several continuation gaps. An exhaustion gap prior to the reversal is common. It is as well to be on the look out for such a development in a rapidly progressing trend because these V reversals can rapidly lead to at least a 50% retracement before finding support or resistance. If you are fortunate enough to be holding a position in such a rapidly progressing trend use a trailing stop to lock in profits should a sudden reversal occur. If a key reversal day or island develops move that stop right in to the periphery of the possible exhaustion gap. If prices break the most recent and steep trendline exit the market immediately to assure that profit.