What is an Island Reversal Pattern?
An island reversal is a chart pattern formed by two price gaps in opposite directions that isolate a small cluster of candles — the "island" — between them.
Price gaps away from the prior range, trades briefly in that separated zone, then gaps back the other way. The middle area gets stranded.
What Does an Island Reversal Pattern Indicate?
It signals a fast shift in control. The traders who entered on the first gap get trapped the moment price gaps back through them in the opposite direction.
That second gap forces exits — stops, margin pressure, position unwinds. This creates urgency and follow-through as the market reprices away from the island. Trapped traders fuel the move.
Is the Island Reversal Pattern Bullish or Bearish?
An island reversal works in either direction. Island bottom = bullish (forms after a downtrend). Island top = bearish (forms after an uptrend).
The direction comes from the second gap. Gap up away from the island? Bullish reversal. Gap down away from the island? Bearish reversal.
How to Identify an Island Reversal Pattern?
Look for two clean gaps in opposite directions with a short, isolated consolidation between them.
The checklist:
A clear prior trend (uptrend for an island top, downtrend for an island bottom)
First gap that separates price from the prior range
2+ candles that stay isolated — no overlap back into the pre-gap area
Second gap in the opposite direction that leaves the island stranded
Obvious highs and lows on the island you can treat as resistance/support
If any element is missing, the pattern isn't valid.
How to Draw an Island Reversal Pattern?
Mark the two gaps first, then box the isolated candles to define the island's high and low.
Mark the first gap boundary — the last price area before the gap that price never traded through.
Draw a box around the island candles from the island high to the island low.
Mark the second gap boundary where price jumps away from the island in the opposite direction.
Extend the island high and low horizontally. Those are your key post-gap levels.
This gives you a visual reference for entries, stops, and targets.
How to Trade an Island Reversal Pattern?
Take the position in the direction of the second gap, but only once price holds away from the island. Premature entries get faded.
Bullish island bottom: Enter long after a gap up opens above the island and doesn't trade back into the island range.
Bearish island top: Enter short after a gap down opens below the island and doesn't trade back into the island range.
Confirmation trigger: A close that stays on the breakout side of the island boundary — above island high for longs, below island low for shorts.
Execution option: Aggressive entry on the gap day, or conservative entry on the first pullback that respects the island boundary. Pick one and stick to it.
What is the Profit Target for an Island Reversal Pattern?
The target is a measured move based on the island's height, projected from the second gap breakout.
Formula: Target = Breakout price ± (Island high − Island low)
Bullish example: Island high $52, island low $48 — height is $4. Gap up breaks out at $53, target is $57.
Bearish example: Island high $105, island low $100 — height is $5. Gap down breaks out at $99, target is $94.
Scaling out partials at the first target works well. Trail the rest if momentum holds.
Where to Put a Stop Loss on an Island Reversal Pattern?
The stop goes beyond the far edge of the island. If price re-enters the island, the trapped-trader premise breaks and the setup is invalidated.
Long (island bottom): Stop below the island low — or below the low of the gap-up reversal day if it's lower and cleaner.
Short (island top): Stop above the island high — or above the high of the gap-down reversal day if it's higher and cleaner.
Use a hard stop. Gaps skip right past alerts and soft levels.
What Happens After an Island Reversal Pattern?
Three outcomes follow. Price trends away quickly, retests the island boundary, or fails by filling the second gap and re-entering the island.
Follow-through: Strong continuation away from the island as trapped traders exit and momentum traders pile in.
Retest: A pullback toward the island high or low that rejects and resumes the new trend. Some traders call this a "throwback." It's the cleanest entry if you missed the gap day.
Failure: Price trades back into the island and starts filling the gaps. The setup turns into chop and mean reversion. Exit.
What are the Different Types of Island Reversal Patterns?
Two types. Island top and island bottom.
Island top: Forms after an uptrend. Gap up into the island, gap down out of it. Bearish.
Island bottom: Forms after a downtrend. Gap down into the island, gap up out of it. Bullish.
Same structure, opposite direction. Read the prior trend and the second gap to identify which one.