What it looks like
A gap up: a candle opens clear above the previous high. A small cluster of candles trades in that higher pocket. Then a gap down: a candle opens clear below the cluster's low. The cluster is left alone at the top like an island. It needs a market that gaps.
What it means
Everyone who bought the gap up and traded in that pocket is now trapped above the market. The second gap shows sentiment flipped quickly. Those trapped buyers may sell to get out, adding pressure, and the second gap gives a clear level where the idea is cancelled.
How to trade it
- 1
Mark the second gap: from the bottom of the stranded candles down to the high of the gap down candle.
- 2
Confirmation: the gap down holds and price stays below the island.
- 3
Entry: sell while price holds below the gap.
- 4
Stop: above the second gap, at the bottom of the island. Example on NAS100: island low 25,500, gap down opens at 25,400. Sell at 25,390, stop at 25,510, a 120 point risk.
- 5
Target: the level where the first gap up began, then the next support.
The second gap is filled: price trades back up into the island.
Where it works best
On daily charts of indices and shares after a news driven rise, and at the weekly reopen on gold.
WickSpeak spots island tops automatically and labels them on the candles that made them. Each note explains what it is, how to trade it and that a filled second gap proves it wrong. In Playbook you can use it as a condition in a play, alone or alongside other patterns and indicators (any of the 146 patterns can be a condition), and backtest it on past candles with your own costs.
Common mistakes
- Expecting islands on markets that seldom gap.
- Treating tiny gaps as significant.
- Waiting for a deep bounce back into the gap before selling, which risks the gap filling.
Related patterns
Questions traders ask
What does an island top mean?
It means buyers who traded in the stranded pocket are now trapped above the market after a gap down. It is a bearish reversal sign.
How do you trade an island top?
Sell while price holds below the second gap, with the stop above that gap. Target the start of the first gap, then the next support.
What proves an island top wrong?
The second gap being filled. Once price is back inside the island the trap has been undone.
How many candles can be in the island?
Anything from one to a handful. The defining feature is a clear gap on each side of the cluster.