"Reversal bars" have several definitions, but the basic concept is a bar that makes a new high or low but then reverses to close in the opposite direction, implying a shift in momentum and a potential directional change.

What significance does the pattern really have? This is the question a serious market scientist would ask, while the more casual trader might prefer not to dig that deep. It’s comforting to trust in daily reversals because they are both visually and theoretically appealing: A market breaks out to new territory, but it can’t hold the move through the end of the day. The change in direction seems like an obvious signal; something big is sure to follow.

A mechanical trader’s job, however is to never take such general observations for granted, but to put the signal through its paces.