What characterizes a bearish key reversal day?

A bearish key reversal day is characterized by the price action that unfolds within a single trading session. This type of day typically sees a security open at or near its previous close, trade significantly higher to establish a new high, and then close below its previous day's close. This sequence of events indicates a shift in market sentiment from bullish to bearish.

The establishment of a new high tends to attract bullish traders and may give the appearance that prices will continue rising. However, if the price subsequently declines and closes below the previous day's closing price, it reflects a failing trend, suggesting that buyers were unable to maintain control and that sellers are starting to dominate. This pattern can serve as a strong signal that a reversal from a bullish trend to a bearish trend is imminent.

The other answer choices highlight different trading scenarios that do not align with the concept of a bearish key reversal day. Specifically, establishing a new low in a downtrend focuses on downtrend continuation rather than reversal. Closing higher than the previous high suggests strength in an upward movement instead of the bearish implication needed for a key reversal. While volatility may accompany a bearish key reversal, it is not a defining characteristic; rather, the key feature is the combination of new highs followed by a close below the previous close.