Trading Reversals

[wrbtrader 10]

Here are a few things to think about when trading reversals.

 

* Reversal signals may occur via technical reasons, price action of other key markets, economic news, world breaking news, political news or combo of any other events that has impact on market direction.

 

* It's not uncommon to see a reversal price action also be a trend continuation price action at the same time depending upon how much of the price action you are viewing on your charts.

 

Simply, to truly understand reversal signals, there's often a lot more to it than just technical reasons and they're very dynamic. It's that understanding that will allow you to be better prepared to trade because you'll know when they have a high probability chance of occurring regardless if you trade trend reversal or trend continuation signals.

[smwinc 20]

 

Simply, to truly understand reversal signals, there's often a lot more to it than just technical reasons and they're very dynamic.

 

True - and because of the fractal nature of markets, it depends on your timeframe.

[wasp 10]

Simply, to truly understand reversal signals, there's often a lot more to it than just technical reasons and they're very dynamic. It's that understanding that will allow you to be better prepared to trade because you'll know when they have a high probability chance of occurring regardless if you trade trend reversal or trend continuation signals.

 

Its easily seen from a technical point of view IMO. The reasoning behind the reversal (major ones) may well be fundamental but TA will show it easily enough. Researching when these happen and why from a multitude of TF's will show how you can increase the probabilities.

 

True - and because of the fractal nature of markets, it depends on your timeframe.

 

The key IMO is to merge your views. Take a top down approach of S/R from 240m and 60m then zoom in to a 60m or 30m chart to pinpoint the trendlines to form the reversal point.

[firewalker 10]

I'm curious as to how others see reversals. I copied this post from the private forum to here, so others can contribute as well.

 

Question: at what point do we have a reversal?

Imo there is no right or wrong, as I think it all depends on what you personally see as a reversal.

 

After you answered that, the second question is where would you go long. I've marked some potential long entries. I removed date, time and price levels because it doesn't matter what instrument or what timeframe this chart is.

 

[Kiwi 16]

I never really have certainty of a reversal until well after I've been trading it. You balance risk in terms of range to a structural stop with risk in terms of probability that the market hasn't reversed and then you place your bets.

 

At A I have a good possibility of reversal (poke to clear stops and increase liquidity) so I'd go long but take a good portion off at B. Also a trendline fan suggests a good possibility for reversal there.

 

At C I'd be feeling good about the probability of reversal and going long again. Back to a full size position.

 

Its not until half way up the long bar after the long bar after C that I feel confident about the reversal because I've now clearly moved beyond two clusters. That's not a point I'd want to go long because I have no structure to support my risk model until the next pullback.