Trend Reversal Signal

A trend reversal signal is a technical or fundamental indicator that suggests the current direction of an asset price is likely to change. These signals are identified through various methods, including chart patterns like head and shoulders, or through changes in volume and open interest.

In options trading, a reversal might be signaled by a sudden shift in implied volatility or put-call ratios. Recognizing these signals early allows traders to pivot their strategies, closing out positions that align with the old trend and establishing new ones that capitalize on the emerging direction.

It is a vital tool for risk management, helping participants avoid holding positions that go against the structural shift of the market.