Bearish Key Reversal Pattern: The Candles at PayPal's 2021 Top and Tesla's Fed-Day High in 2022

On September 8, 2021, the day after PayPal agreed to buy Japan's Paidy for about $2.7 billion, the stock traded above the pivot of its failed July breakout, then closed below the prior day's low: a bearish key reversal. Sold at that close with a stop above its high, the trade risked 4.0%. By February 23, 2022 the stock was down 64.7%. On November 3, 2026 it closed 79.6% below that close.

On September 21, 2022, the day the Fed raised rates by three-quarters of a point for the third meeting in a row, Tesla printed one. The risk was 4.3%. By January 3, 2023 the stock was down 64.1%.

PayPal has never traded above its key reversal's high since. Tesla's high held for 537 sessions. Here is how to read a bearish key reversal, where the stop goes, and how to find the next one.

What the fall cost#

A bearish key reversal is a sell signal for holders and an entry for short sellers. Held through the fall, $10,000 of either stock lost almost two-thirds of its value.

Prices are split-adjusted, as on the chart.

The bearish key reversal in one table#

A bearish key reversal is two daily candles. On the second day the stock trades above the first day's high, then turns and closes below the first day's low. Buyers pushed it to a new high, and sellers took back the whole of the day before by the close. It is the bullish key reversal turned upside down, at a top instead of a bottom.

These are the rules the VCP Scanner terminal uses to name a bearish key reversal on a daily chart.

The bodies and the colours do not count. Both examples had a green day 1. PayPal's day 2 opened above day 1's close, so its red body covered the green one and the bar was also a bearish engulfing. Tesla's day 2 opened 44 cents under day 1's close, so its key reversal was not an engulfing at all.

The position rule matters most. A bearish key reversal comes after a rally. After a decline, the mirror image (a new low, then a close above the prior day's high) is a bullish key reversal.

Bearish key reversal and its look-alikes#

The bearish engulfing is the near twin. It compares bodies: day 2's red body covers day 1's green one. The key reversal compares the range: a higher high and a close below the low. Many bars are both, like PayPal's. Every bearish key reversal is also an outside day; the key reversal adds the place (after a rally) and the close (below the prior low).

Example 1: PayPal (PYPL) at its 2021 top, Sep 8, 2021#

Open PYPL in the VCP Scanner terminal →

The level: PayPal broke out over a 296.01 pivot on Jul 7, 2021, set its record high of 310.16 on Jul 26, and closed back under the pivot on Jul 29, the session after its earnings report. The breakout had failed. On Sep 7 PayPal announced it would buy Paidy, a Japanese buy now, pay later company. The next session the stock climbed back over the old pivot, by 69 cents, and closed 2.7% lower.

What followed:

• Next session (Sep 9): closed at 286.88, up 0.6%. Its high that day, 289.37, is the highest PayPal has traded since, 7.33 under the stop.
• Sep 13: 280.49, the first close below the pattern's low of 283.33, three sessions after the key reversal.
• Ten sessions later (Sep 22): 272.34, −4.5%.
• Dec 1: 179.32, −37.1%.
• Feb 23, 2022: 100.72, −64.7%, its lowest close since April 2020. That is 16.1 times the 11.47 risked on each share.
• The high of 296.70 was never taken out. On Nov 3, 2026 PayPal closed at 58.21, 79.6% below the key reversal's close.

Two post-earnings gaps down made up about three-tenths of the fall to Feb 23: Nov 9, 2021 (−7.4%, about a sixth of the fall to Dec 1) and Feb 2, 2022 (−20.4%, after a weak 2022 outlook). The rest came day by day. The second dot on the chart is another bearish key reversal, on Oct 20, 2021, at the falling 50-day (also an evening star), and its high of 273.51 has never been taken out either.

With $500 at risk, the stop sized a short at 43 shares, about $12,265. At the Feb 23, 2022 close the short was up $7,934.

Example 2: Tesla (TSLA) on the Fed day, Sep 21, 2022#

Open TSLA in the VCP Scanner terminal →

The day: the Fed raised its rate by three-quarters of a point for the third meeting in a row, to 3.00-3.25%, and signalled more hikes than markets expected. The S&P 500 rose as much as 1.3% after the decision and closed down 1.7%. The two highs, 47 cents apart, also made the bar a tweezer top.

What followed:

• Next session (Sep 22): closed at 288.59, down 4.1% and already below the pattern's low of 300.63. Its high that day, 301.29, was the highest Tesla traded until November 2024.
• Ten sessions later (Oct 5): 240.81, −19.9%.
• Dec 14: 156.80, −47.9%.
• Jan 3, 2023: 108.10, −64.1%, its lowest close since August 2020, on a 12.2% drop after Tesla's third delivery miss in a row. That is 14.8 times the 13.00 risked on each share.
• The high of 313.80 held for 537 sessions, until Nov 8, 2024. On Nov 3, 2026 Tesla closed at 398.50.

One 5% gap down came in the fall: Oct 20, 2022, the session after its earnings report, about a tenth of the fall to Dec 14. Its other big gaps went up. The fall was built day by day.

With $500 at risk, the stop sized a short at 38 shares, about $11,430. At the Jan 3, 2023 close the short was up $7,323.

Where a bearish key reversal counts: key levels#

A bearish key reversal on a level is a test of that level from below. In the terminal, the Only at a key level switch is on by default and keeps the key reversals that close back below one of these:

PayPal's sat on one: the pivot of its failed July breakout. It shows with the default switch. Tesla's high was 87 cents under its August high, so it never traded above that prior high, and it sat on none of these levels. To see key reversals like Tesla's, turn Only at a key level off.

PayPal was in Stage 2, Stan Weinstein's advancing stage: the stock trades above a rising 30-week average. Tesla was in Stage 1, a base after a decline. A bearish key reversal in Stage 2 marks a top inside an uptrend, a place to take profits or tighten a stop as much as a place to short.

How to trade a bearish key reversal#

1. Find the high. A bearish key reversal comes after a rally. Look for it at a prior high, a failed breakout's pivot, a falling average or a fresh record, like PayPal's in 2021 and Tesla's in 2022.
2. Check the range. Day 2 must trade above day 1's high and close below day 1's low. PayPal's high was 3.02 over and its close 2.81 under. Tesla's were 0.47 over and 4.78 under.
3. Choose your entry. Holders sell or tighten their stop at day 2's close, and some short sellers enter there. Others wait for a close below day 2's low. Tesla gave that close the next session. PayPal gave it three sessions later.
4. Put the stop above the high. Above day 2's high, or above the highest high of the test if price went higher earlier in it. The terminal calls this "the high, test included".
5. Size from the stop. Shares = money at risk ÷ (stop − entry). With $500 at risk on Tesla: 500 ÷ (313.80 − 300.80) = 38 shares.

A stop on a short is a plan, not a guarantee: a gap up can open above it. Both examples' stops held, but size every short as if one could.

Find bearish key reversals on any chart in VCP Scanner#

• Open a stock in the terminal, for example PYPL or TSLA.
• Open Candles in the chart toolbar and tick Bearish key reversal, or use the Reversals quick pick for every classic reversal candle. With the quick pick on, a key reversal that is also an engulfing or a tweezer top shows under that name (PayPal's as the engulfing, Tesla's as the tweezer top); tick only Bearish key reversal to see every one.
• Only at a key level is on by default. Turn it off to see every bearish key reversal on the chart, including Tesla's.
• The chart jumps to the latest bearish key reversal. A dot marks each one over its high, and the selected one shows its stop on the price scale.
• The inspector lists the close, stop, risk to stop, level, volume and stage, and the bar's other names under Also. Walk through the others with the ← and → keys.
• Mark the ones you care about with the drawing tools. The arrows in the charts above are the Arrow Marker (Alt+A): click where the arrow starts, then click the candle.

Candles are free, on daily, weekly and monthly charts.

Bottom line#

• A bearish key reversal is a new high that closes below the prior day's low: buyers made the high, and sellers took back the whole day before by the close.
• PayPal's marked its 2021 top at the pivot of a failed breakout, and Tesla's its high on the Sep 21, 2022 Fed day. Both risked about 4%, and both stocks fell more than 64% within six months.
• Day 2's high is the stop. It defines your risk before you take the trade.

Data: VCPScanner daily market data through Nov 3, 2026, split-adjusted. The examples are for education, not recommendations.