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4.7 Island Reversals - YouTube
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so if we look at this island here you
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might say well that's a nice looking
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island that has a nice beach would be a
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nice place me to relax on but what if i
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told you there was nobody there with you
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and there was no food or water and
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nobody was coming to help you it might
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not be such a great place to be right
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and that's what eyelid reversals are a
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lot of times they're not a great place
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to be
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but they can be a very strong indicator
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to show what's going to happen next so
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they're something they're rare they
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rarely occur but when they do they're
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very very strong indicator and could
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provide a great great opportunity so if
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you see an island of reversal you really
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want to pay attention to it and kind of
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what they are is they're uh it's an
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exhaustion gap you know where it's been
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exhausted as we learned about and it's
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going to have this gap followed
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immediately by a breakaway gap in the
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opposite direction the next day so what
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you're finding is that whichever way
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it's going that breakaway gap the next
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day that you're finding a last trader
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kind of finds they're on an island you
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know by themselves and they have to
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start adjusting their price either up or
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down to kind of get back in within step
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with people who are willing to buy or
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trade or buy and sell or trade with them
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and are you know basically looking at
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you know maybe a
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different way the trend is going to go
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so let's take a look at these island
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reversals and how to recognize them you
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know in a more understandable graphic
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manner
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so to identify these island reversals
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you're going to need an exhaustion gap
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right and so we know from day 14 to day
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15 uh that we were looking at possibly
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or looking at an exhaustion gap we saw
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that our volume was you know not
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going up like should have had a real
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spike in volume there it actually went
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down in terms of our volume between day
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14 and 15 and so we know we're running
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out of steam and that is our exhaustion
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gap and then what typically will happen
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is you'll you'll now start seeing you
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know overlapping bars and it might start
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going sideways might even start going
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down or you know basically the trend has
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been you know basically broken at this
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point and it's not trending upward
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anymore as in this example but sometimes
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what happens is the island reversal as
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we mentioned you have an exhaustion gap
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that is immediately followed it's
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immediately followed by a big jump up in
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price you know that looks like it's
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another runaway gap the classical way to
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find that it would be the next day
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as far as their being a true island
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reversal sometimes folks will say oh it
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might be you might have one or two
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trading periods in between but really
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the classic way to look at is between
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like in this example 15 and 16 you're
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going to have these two kind of back to
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back gaps so you have your exhaustion
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gap low volume
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and then the ocean that just keeps going
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up higher there's a whole another big
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gap whole another big let's try to push
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this even higher and that's where you
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might see uh you know even lower volume
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let's see coming on uh you know that bar
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in between those volume bars uh where
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you could see even lower volume because
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it's really is truly exhausted that
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you're really on an island you're the
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last person out there trying trying to
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buy and you might have a couple sellers
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out there but it's really already post
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the exhaustion phase and the really
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where you can tell
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is uh you can start looking for that low
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volume on that exhaustion gap right so
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there's low volume and that tells you
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time to sell there's high volume on a
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runaway gap that tells you to buy right
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we saw a previously on day 12 that
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runaway gap where it's time to buy
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but a low volume island reversal is
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gonna have you're gonna have that low
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volume on the day 16 in this example and
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then the time to sell or buy depends on
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the island right you're waiting for the
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island to form so we don't really truly
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know it in the a16 we need a day 17 uh
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to to show what's going to happen and
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then what will happen is then on day 17
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you know there's going to be some high
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volume there's one way you can see here
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you've got your island in reverse so
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you've got these low volume days of
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of exhaustion gaps the island forming
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and then the reversal going the opposite
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way is happening where there's a lot of
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volume and it's going to
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go the other way so the time to sell or
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buy depends on the island as i mentioned
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so if we look on the left here you can
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see that this was an upward trend that
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was exhausted
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then jumped up from day 15 to 16 to an
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island and then we're waiting to see
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what happens on day 17 and that's really
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what's going to confirm that we're on an
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island that it didn't continue going up
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or something like that where it might
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have actually been more of a runaway uh
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gap it was actually a true um island you
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know after an exhaustion and
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you can see how now prices have come
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down and there's another gap in between
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but a lot of volume now people are
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really selling and they're trying to get
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out of it that's the example of left
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side so that's now created a new
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downward trend on an island reversal so
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it's time to sell get out book the
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profits that we've made from day you
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know one through 16 you know you know if
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we're staying the whole time or or 14 or
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however we stayed along but if we're in
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this
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security right now we'd want to get out
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right by the same token if you look on
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the other side
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where uh if you look at day 13 14 15 you
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know things have been down trending
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right we haven't bought yet because it's
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in a downtrend there's a there's an
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exhaustion gap from a previous you know
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runaway gaps and breakaway gaps that
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have led to a strong trend going
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downward prices are going down we see
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the exhaustion gap between day 14 and
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15. we see day 16 following that
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exhaustion gap going out by itself on an
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island
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we're going to watch to see what happens
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on day 17. what happens at day 17 the
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price goes back up significantly we see
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that high volume we see that we have an
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island reversal but actually it's going
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in the other direction and we want to
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buy on that now we're seeing a new
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upward trend that is forming and so this
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would be a great buy signal you know
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kind of confirming with that volume that
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we have an island reversal going in the
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other direction so the key points is you
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don't know if it's an island until the
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second gap occurs it's day 17 in this
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example you might see it jump out way
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ahead after an exhaustion gap and kind
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of guess like oh is that a reversal and
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it could be but you really
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need to you know look at that volume and
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you really need to confirm with that the
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following day others will guess based on
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the volume like if it's a low volume
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they might say oh on day 16 our our
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volume was low uh and then then we're
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going to guess and say that's an island
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reversal and that's not a bad guess
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actually but to be a true island
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reversal you're going to need that day
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17 in this example see there's high
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volume there that really established
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that yes things have changed there's a
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definite change and now a new trend is
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forming so to really look at a classic
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completed island you'll have to have an
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exhaustion gap with low volume followed
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by an island gap with low volume and in
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a sense a breakaway gap high volume
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going in the opposite direction forming
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that island and you don't want to be on
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the island you want to get either off
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the island or or get on the new trend
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depending which way it's headed so those
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are island reversals they're actually
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very rare occurrences but when you if
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you see it and kind of recognize it in a
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chart pattern really watch that closely
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because they're very very strong
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indicators uh probably because they're
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so rare and there's so many requirements
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behind it right with the exhaustion gap
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you know all that coming in the strong
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trends coming beforehand either up or
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down so watch for island reversals and
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be ready to strike nothing's perfect of
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course but this is a good good strong
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indicator and do check those volume
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levels to kind of confirm what you're
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what you're seeing is what's truly
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happening
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