What defines a bullish key reversal day?

A bullish key reversal day is characterized by the price action where a new low is established during the trading session, but the day ultimately closes above the previous day's close. This pattern signals a potential reversal from a downtrend to an uptrend.

When a market establishes a new low, it indicates that sellers are initially in control; however, the subsequent closing above the previous close suggests that buyers have stepped in, reversing the downward momentum. This behavior reflects a shift in market sentiment, which can indicate the potential for a bullish trend moving forward.

The other descriptions do not capture the essence of a bullish key reversal day. For instance, a close below the previous close after a drop does not indicate bullish sentiment; rather, it suggests continued bearish momentum. Achieving a new high without any reversal does not provide evidence of a key reversal either, as it indicates that the bullish trend is intact. Lastly, a formation during a distribution period could imply that a market is distributing shares before a potential decline, rather than indicating a bullish reversal. Therefore, the correct definition aligns precisely with the price action and market psychology that defines a bullish key reversal day.