[Susana]

Hello fellow traders,

I'm a SPY/Q ES/NQ swing trader. However, I do use intraday to get my surgical entry.

I guess you could call me a reversal trader as I'm only interested in low risk high rewards types of plays. Naturally, my accuracy is low, price I have to pay for looking for a minimum of 5-10X risk reward ratio.

For the longest time I studied reversal patterns, I will list some of the ones I play:

- Head and Shoulders, Inverse Head and Shoulders
- Double Tops, M formations
- Double Bottoms, W formations
- Trader Vic's 2Bs

I just don't trade them anywhere. For instance, I like to short high and buy low, this increases the chances of obtaining the high reward I'm after.

To supplement this I use Market Profile Value Low and Value High areas, Globex High / Low and Previous Day Highs and Lows.

For instance:

A confirmed W formation at Value Low

A confirmed M formation at Globex high

You get the picture.

I do well with this system, mostly because I have the correct discipline to let the winners run and I always know where my stop should be placed because the reversal formations are all well documented. After studying the markets for many years I concluded that entering in the middle is a mistake, at least for longer term plays, because your stop is very much unprotected. When you initiate your trade on the edge you are somehow protected by support or resistance and the confirmed reversal formation. This is the only way I have ever managed to consistently make money out of the markets, slowly, but surely.

My trading size is a multiple of 2. If I'm trading SPY I use 200 shares, if I'm trading NQ I use 2 contracts. My first target is the next key area of Resistance if I'm taking longs or next key area of support if I'm taking shorts. My last target is an opposite play, in which I close and reverse with a brand new multiple of 2 size.

I think that about sums it up.

Now, that I have presented what my trading system consists of I would like to ask more experienced traders to help me improve it as any accuracy improvement would be tremendously welcome.

Thank you for your time and cooperation.

[jonbig04]

Your system is exactly what I'm looking to add to mine. You could not be more right about having you're stop protected. I'm not swing, but I only take around 7-12 trades per week. Anyways sorry I don't have any advice, good luck!

[Soultrader]

Support and Resistance, technical and psych levels, and indicators can add structure to your trading in order to minimize risk. (stop levels) This is because you can use these values as a guideline to know when to get out if wrong.

My old boss was an amazing countertrend/reversal type trader. He did this by not looking at technical setups but by looking at the overall market sentiment in combination with tape. What are the movers of today? For example, he would look at financial stocks to sense reversal signs. (of course one needs to be aware which sectors to look at at different times of the market cycle) This is an idea that you can look into.

Also, for all reversal plays I always look at volume. A classic setup for me would be a high volume followed by a test on low volume. This has to be in line with a S&R level I am looking at. An example from todays trading session:

[jonbig04]

I could be way off, but I think thats an M top confirmed by hump test that she mentioned.

[Soultrader]

You're right... I should of read her post more carefully.

Susana, how about pit noise to determine whether commercials are coming in or not? You have levels you watch for already.... all you require is the additional institutional participation to confirm your trade. And perhaps consider moving your stops up/down to break even to protect yourself as your strategy is extremely high risk (but high reward).

[Susana]

Yes, volume divergence helps a bit when spotting the reversals, sometimes the usage of oscillator divergence but many times I find the setups lacking these characteristics and working just fine.

Tough call.

Thank you for your reply.

[Susana]

Originally Posted by Soultrader »

You're right... I should of read her post more carefully.

Susana, how about pit noise to determine whether commercials are coming in or not? You have levels you watch for already.... all you require is the additional institutional participation to confirm your trade. And perhaps consider moving your stops up/down to break even to protect yourself as your strategy is extremely high risk (but high reward).

Interesting suggestion, will look into the pit noise.

Regarding, the stop placement, I don't touch the stop until the trade has somewhat developed into something productive. I've found that one too many times the quick relocation of the stop leads to unnecessary stops.

As far as high risk, I respectfully disagree, my risk never goes above 1% on any given trade. Hopefully, you meant, low accuracy

Thanks again for your time.

[jonbig04]

I would guess you place your stops in strategic areas so that you are only stopped if the reversal formation fails (and ideally price doesn't reverse). Do you play the failures of the formations at all?