(as described by Vic Sperandeo in "Trader Vic: Methods of a Wall Street Master")

1. trend line broken
2. lower high in an uptrend, or a higher low in a downtrend.
3. break below the previous low in an uptrend, or above the previous high in a downtrend
 

At point 3 the reversal is confirmed and everybody's brother is getting short. A stop run often follows to re-test the penetration at point 3. Quicker traders may get short at the X, or even closer to the 2 based on other indicators (divergence, Fibonacci retracement, Bollinger band touch, etc.) 

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