Reversals in trading have two components: an emotional component and an intellectual component. The emotional component is that traders' egos enjoy predicting the market's peak or bottom. As a consequence of this emotional approach, often if the data are contrary to one's beliefs, so much for the facts, which means that in order to ensure that a top or bottom is in play, a trader will push forward in order to prove their theory accurate.

In forex trading, a reversal is a change in the direction of a currency pair's price trend. It signifies a shift from an uptrend to a downtrend or vice versa. Reversals can occur due to various factors, including economic news, changes in market sentiment, or shifts in supply and demand dynamics. Traders often look for specific technical indicators, such as trendlines, moving averages, or reversal candlestick patterns like the hammer or shooting star, to identify potential reversals. Recognizing a reversal early can be crucial for traders to maximize profits or minimize losses, as it allows them to adjust their positions accordingly, either by exiting trades or entering new ones in the direction of the new trend.