Key Reversal

Key Reversal

Understanding Key Reversal

Let's kick off our learning curve with a simple yet vital concept used in option trading with cryptocurrencies: the Key Reversal. It is essential you understand this term as it can serve as an indicator for predicting a shift in the current price direction of a cryptocurrency.

Defining Key Reversal

A Key Reversal is a price trend shift that happens on an individual trading day. In simple terms, it is a trading day where the market takes a drastic push in the opposite direction to its previous trend. It is classified into two types; Key Reversal Up and Key Reversal Down.

Key Reversal Up and Down

A Key Reversal Up (or bullish key reversal) takes place when the market hits a new low, but the close is higher than the previous day's end. On the flip side, a Key Reversal Down (or bearish key reversal) is when the market reaches a new high, but ends up closing lower than the previous day’s finish. The key reversal up suggests a potential for price growth, while the key reversal down warns of likely price fall.

Key Reversal in Cryptocurrency Option Trading

In the context of cryptocurrency option trading, a Key Reversal serves as a price action pattern utilized by traders as an early signal for market reversal. It could be a signal for the trader to buy if a key reversal up is in sight, or to sell in a key reversal down scenario.

The use of Key Reversal in Trading Strategies

Traders often incorporate the Key Reversal into their trading strategy for its predictive value. It can provide an indication when to exit or enter a trade, contributing to making informed trading decisions. Despite its usefulness, it's vital to note that relying solely on Key Reversal for trading decision-making can be risky, it should ideally be used along with other technical indicators.