what does a reversal tell you 
reversals often occur in intraday trading and happen rather quickly but they also occur over days weeks and years reversals occur in different time frames which are relevant to different traders an intraday reversal on a five minute chart doesn t matter to a long term investor who is watching for a reversal on daily or weekly charts yet the five minute reversal is very important to a day trader an uptrend which is a series of higher swing highs and higher lows reverses into a downtrend by changing to a series of lower highs and lower lows a downtrend which is a series of lower highs and lower lows reverses into an uptrend by changing to a series of higher highs and higher lows trends and reversals can be identified based on price action alone as described above or other traders prefer the use of indicators moving averages may aid in spotting both the trend and reversals if the price is above a rising moving average then the trend is up but when the price drops below the moving average that could signal a potential price reversal trendlines are also used to spot reversals since an uptrend makes higher lows a trendline can be drawn along those higher lows when the price drops below the trendline that could indicate a trend reversal if reversals were easy to spot and to differentiate from noise or brief pullbacks trading would be easy but it isn t whether using price action or indicators many false signals occur and sometimes reversals happen so quickly that traders aren t able to act quickly enough to avoid a large loss example of how to use a reversalthe chart shows an uptrend moving with a channel making overall higher highs and higher lows the price first breaks out of the channel and below the trendline signaling a possible trend change the price then also makes a lower low dropping below the prior low within the channel this further confirms the reversal to the downside the price then continues lower making lower lows and lower highs a reversal to the upside won t occur until the price makes a higher high and higher low a move above the descending trendline though could issue an early warning sign of a reversal referring to the rising channel the example also highlights the subjectivity of trend analysis and reversals several times within the channel the price makes a lower low relative to a prior swing and yet the overall trajectory remained up difference between a reversal and a pullbacka reversal is a trend change in the price of an asset a pullback is a counter move within a trend that doesn t reverse the trend an uptrend is created by higher swing highs and higher swing lows pullbacks create the higher lows therefore a reversal of the uptrend doesn t occur until the price makes a lower low on the time frame the trader is watching reversals always start as potential pullbacks which one it will ultimately turn out to be is unknown when it starts limitations in using reversalsreversals are a fact of life in the financial markets prices always reverse at some point and will have multiple upside and downside reversals over time ignoring reversals may result in taking more risk than anticipated for example a trader believes that a stock which has moved from 4 to 5 is well positioned to become much more valuable they rode the trend higher but now the stock is dropping to 4 3 then 2 reversal signs were likely evident well before the stock reached 2 likely they were visible at before the price reached 4 therefore by watching for reversals the trader could have locked in profit or kept themselves out of a now losing position 