[Soultrader]

I would like to dedicate this thread to specifically reversals. I have been taught to build strategies around reversals in the futures market and momentum with stocks. Hence, will post some charts explaining setups and patterns that are common of reversals in global markets. Hopefully many of you can share your insights as well.

The first chart shows the KOSPI futures from today. A classic reversal patterns developed today with an obvious volume spike hinting first sign of accumulation/short covering. This is my first clue to watch for. The second clue is a lower low or test of low on diminishing volume. The third sign I prefer to watch for (not always as I may enter before this on an aggressive trade) is a break of a trendline. The fourth is a push through supply volume bar. Basically after absorption and climatic selling, I need an extra bar of professional buying which will force others to join and lift price higher. Higher prices will attract further buying as the late comers will climb on board.



More to come...

[firewalker]

Originally Posted by Soultrader »

The third sign I prefer to watch for (not always as I may enter before this on an aggressive trade) is a break of a trendline. The fourth is a push through supply volume bar.

The problem with using the break of a trendline as a definite reversal signal, is that often a secondary one can be drawn, with a less steeper angle. I don't mean to say that there aren't profitable trades to be taken of this kind of move, but price doesn't have to reverse and can still continue after failing to retrace a decent part of the move.

I'll see if I can come up with a chart to explain what I mean.

[wasp]

Ahh, my forte... (sometimes!!)

Like any method you need strict rules to define what and when and I will contribute more over the weekend when I have more time but a quick chart of this week on the EURJPY that I have been watching. Coupled with S/R it can work well.

[Soultrader]

Originally Posted by firewalker »

The problem with using the break of a trendline as a definite reversal signal, is that often a secondary one can be drawn, with a less steeper angle. I don't mean to say that there aren't profitable trades to be taken of this kind of move, but price doesn't have to reverse and can still continue after failing to retrace a decent part of the move.

I'll see if I can come up with a chart to explain what I mean.

Thanks fw, looking forward to it. Would like to learn more about ppls methods on reversals. On top of the chart explanations, I would like to add that I place great importance to where price is relative to previous day value area, previous day range, and control point.

[DbPhoenix]

Originally Posted by Soultrader »

I would like to dedicate this thread to specifically reversals. I have been taught to build strategies around reversals in the futures market and momentum with stocks. Hence, will post some charts explaining setups and patterns that are common of reversals in global markets. Hopefully many of you can share your insights as well.

I used to attach a lot more importance to trendlines (or demand/supply lines) than I do now since so many good reversals occur before the trendline break. And if I wait for the break, the odds of a test that will take out my stop increase (unless I have a wide stop, which I avoid).

On the other hand, I've learned to attach far more importance to support and resistance. The "selling climax rally retest" pattern occurs in meaningless forms far too often, and one can easily end up making countertrend trades a habit (ditto with "hammers"). But if this occur at S/R, the odds of success increase dramatically. Yesterday, for example, the ES and NQ hit resistance almost to the tick, and the rest was just management. Without the test at that particular level, who knows?

[wasp]

Originally Posted by wasp »

Ahh, my forte... (sometimes!!)

Like any method you need strict rules to define what and when and I will contribute more over the weekend when I have more time but a quick chart of this week on the EURJPY that I have been watching. Coupled with S/R it can work well.

Originally Posted by DbPhoenix »

I used to attach a lot more importance to trendlines (or demand/supply lines) than I do now since so many good reversals occur before the trendline break. And if I wait for the break, the odds of a test that will take out my stop increase (unless I have a wide stop, which I avoid).

On the other hand, I've learned to attach far more importance to support and resistance. The "selling climax rally retest" pattern occurs in meaningless forms far too often, and one can easily end up making countertrend trades a habit (ditto with "hammers"). But if this occur at S/R, the odds of success increase dramatically. Yesterday, for example, the ES and NQ hit resistance almost to the tick, and the rest was just management. Without the test at that particular level, who knows?

Agree, the cross on its own is weak but when used/at areas of S/R the trade becomes much better.

Here is the same chart with the 240m and 60m levels on too. The reversal/crossover points become more valid and chances increase.

[DbPhoenix]

Originally Posted by DbPhoenix »

I used to attach a lot more importance to trendlines (or demand/supply lines) than I do now since so many good reversals occur before the trendline break. And if I wait for the break, the odds of a test that will take out my stop increase (unless I have a wide stop, which I avoid).

On the other hand, I've learned to attach far more importance to support and resistance. The "selling climax rally retest" pattern occurs in meaningless forms far too often, and one can easily end up making countertrend trades a habit (ditto with "hammers"). But if this occur at S/R, the odds of success increase dramatically. Yesterday, for example, the ES and NQ hit resistance almost to the tick, and the rest was just management. Without the test at that particular level, who knows?

Here's one of the charts referred to above. Note that whether or not one considers the first bar to be "climactic", the volume on the test is considerably less. Resistance is at or about 1420.

[firewalker]

Originally Posted by DbPhoenix »

Here's one of the charts referred to above. Note that whether or not one considers the first bar to be "climactic", the volume on the test is considerably less. Resistance is at or about 1420.

An very similar thing just happened on the NQ... (upper line = R, lower line = S, red dot = short entry).