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asop

How do you spot reversals?

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Hello Asop,

 

This is something that can only come with experience. There are three things that I look for.

 

First is you should know where your Stock/Future contract support and resistance levels are located. Also, day or previous days hi/lo are, and pivot points.( for pivot point education check out the video section of this website).

 

Second, when price approaches any of these above levels start to watch how volume behaves. Look at the tape. I am in the process of learning tape reading but it already has placed me in profitable trades and also kept me from placing what would have been losing trades. ( The video section has a great videos with tape reading made by SoulTrader, Traderlaboratory's founder ).

 

Third, I like to look for certain candlestick and/or technical patterns that appear intraday. The falling wedge pattern and the candle stick hammer when appear at the day Hi/Lo or swing Hi/Lo are very powerful patterns with a high probability of profitability. If you don't know what they are, read books.

 

Now when two or all three or these conditions are present at a particular price level, a reversal may be in progress.

 

Hope this helps.

Good Trading

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asop,

 

reversals on what time frame?:)

 

You just gave the biggest clue to finding the reversal. Reversal in one timeframe is not in another. For me, if the market has been making higher highs and higher lows, then start breaking the last low and make lower highs and lower higher, a reversal is taking place. But I always make sure this is seen in a higher timeframe as well or at least wait for it to prove itself before committing my money on it.

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Candlesticks or not, I mainly look at the high and low of each bar and determine if it's broken the last bar high/low or last pivot of groups of bars. I don't use candlesticks individually because I used trade with it without success. I found that price action and trends cannot be determined in a single candlestick or a few candlesticks. I use a group of bars (candlesticks or not), 5-10 MINIMUM. Reading price action can be used with and without candlesticks and using it can determine condition of the market and how these bars relate to each other based on higher highs/lows and lower highs/lows principle.

 

higher-highslows-lower-highslows-example.gif

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asop, maybe for a newbie it can be easier to trade continuations of a good solid established trend... reversals demand the 6th sense that you will have after a couple thousand screen time hours... as it happens with most of us.. now continuations are much easier to spot and can give some nice good buck to pay data service... and go to the supermarket.... on the meanwhile you can start learning reversals... its a complete different story... cheers Walter.

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I am a newbie in forex trading,too( only 3 months with use of real money) and I currently try to trade only strong good solid established trends ,upwards or downwards it's no importance to me,the reversals are scarring me off right now! :P

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dear guy,

 

I combine 60 min candlesticks with volume bars. A reversal candle must be going with a big volume bar. I mean for big, the biggest of the day, approximately. this combination must be done in support o resistance areas. once you have this pattern you enter your order about the 50% of the tile. But, you have to be carefull that highs and lows are higher in a tick graphic if you are bull or, highs and lows are getting lower in a tick graphic if you are a bear. otherwise, you can be getting in against the market trend of the day. if you combine all this with a high depth of orders in the order book the at the possition you want to enter; it is quite probable that your move will be succesfull. set your stop loss a little bit further of the end of the tile and always bellow or above of the resistance/support

 

if you want a I sent a graphic to you, let me know

 

best regards

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dear guy,

 

I combine 60 min candlesticks with volume bars. A reversal candle must be going with a big volume bar. I mean for big, the biggest of the day, approximately. this combination must be done in support o resistance areas. once you have this pattern you enter your order about the 50% of the tile. But, you have to be carefull that highs and lows are higher in a tick graphic if you are bull or, highs and lows are getting lower in a tick graphic if you are a bear. otherwise, you can be getting in against the market trend of the day. if you combine all this with a high depth of orders in the order book the at the possition you want to enter; it is quite probable that your move will be succesfull. set your stop loss a little bit further of the end of the tile and always bellow or above of the resistance/support

 

if you want a I sent a graphic to you, let me know

 

best regards

 

What tick charts do you use? I use 60min and 3000 tick charts with 600 tick for entries.

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torero,

 

with real tick, I use 60 minutes candle sticks combine with volume bars. At the same time I also use tick a tick charts of 1 and 5 days. these tick a tick charts I use them to follow highs and lows closly. So, a good pattern of candles and volume must be joint with a good relation of highs and lows at the same time

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dear walterw,

 

I attache a today´s mini sp picture.

 

you can se how the reversal 60 minutes candle is formed on the support area located between 1451 (top of past days) and 1454.75 (top of 5th, april). this area was resistance last week, today is support. look at how the base of the head candel lines exactly on the 1454.75. see aswell how the 50% tile area has been support area for today (1453.75 approximately). At the same time observe the volume bars (both are the highest of the day. Anyway, this is an example of combining candles 60 min with volume bars but today I wouldnt enter an order because of we are quite high in sp and elliott tells me that a down is close. I would buy at levels of levels of 1450 but reaching first levels of 1465 if we had this pullback and volume/candles realtionship is positive for a bullish entry

 

best regards

5aa70dd145e2a_tradingstation001.jpg.50b316af44c630205f3c427dce97d3f7.jpg

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Did you take a picture of the actual screen?:) Sure looks like it. Comes through a lot better ( and a lot easier for you ) if you just use the print screen function or a program like snag-it. Glad to have you here though.

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I know trader 273

 

the thing is that I use different computer from my trading one to chat or surf the web. I do this to avoid getting virus attacks. so I was a little lazy to get a graphic from my trading maching and put it into the lap top which I surf. Anyway, thanks for your interest.

 

malvado xetra

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I know trader 273

 

the thing is that I use different computer from my trading one to chat or surf the web. I do this to avoid getting virus attacks. so I was a little lazy to get a graphic from my trading maching and put it into the lap top which I surf. Anyway, thanks for your interest.

 

malvado xetra

 

Mal - I think you can use a program like SnagIt w/o worrying about a virus slipping in. :p

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Just started trading 3 months ago. Can you guys share some of your methods on spotting reversals? Thanks

 

 

While there is a bit more to it, a good place to start is with WRB analysis. Plus you could add in an understanding of volume..........

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You could do worse than look at Joe Ross' law of charts he has an unambiguous definition. Basically if you get a swing high, swing low, lower swing high you have changed from up to down. He calls this a 1-2-3. Joe has a rigerous definition for congestion too. Gann with his 2 bar swing suff is similar. Both are available free on the internet. I like Dunnigans stuff too. Again all based around swing highs and swing lows.

 

If you want quick and diry for longer term intraday how about above the floor pivot trend up below the floor pivot trend down? You could use the market profile point of control for that too. Not a bad quick and dirty definition. Trend lines are great too as long as you draw them consistantly. When the 'inside' line is broken the trend is over. The nice thing about these is they can give you stops and targets.

 

These are all just based simply on price.

 

It is pretty important to have some consistant frame of reference but it dosent really matter what it is - after studying enough charts you will be ale to see what price is doing in a heartbeat.

 

Incidentay price seldom just reverses unless you include sideways as a direction. Up -> Sideways and Down -> Sideways are more common than up -> down.

 

Finally to start with I would focus on what price is doing now rather than trying to anticipate whether it may reverse or not.

 

Hope that helps a bit.

 

Cheers.

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I know trader 273

 

the thing is that I use different computer from my trading one to chat or surf the web. I do this to avoid getting virus attacks. so I was a little lazy to get a graphic from my trading maching and put it into the lap top which I surf. Anyway, thanks for your interest.

 

malvado xetra

 

Malvado, I've used this tool for 2 years now and never had a problem. I use the screen capture and photo resizer tools.

 

FastStone Image Viewer - Powerful and Intuitive Photo Viewer, Editor and Batch Converter

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Just started trading 3 months ago. Can you guys share some of your methods on spotting reversals? Thanks

 

Hi asop,

 

Your question is a commonly asked question on the internet among traders and there are many free resources online that can be easily researched via something like Google in which you will find in-depth explanation of what someone calls a "trend reversal" pattern.

 

Further, there's a difference between trend continuation, trend reversal and counter-trend signals. Many traders get trend reversal and counter-trend price action mixed up as if they are the same.

 

In fact, most of the traders I've met that had problems with trend reversal trading (change in volatility with a reason/event for the change) where actually counter-trend trading (no change in volatility and there's no reason/event to signal the change).

 

With that said, consistently profitable trend reversal traders understand there's more to it than just the pattern signal.

 

First of all, the best trend reversals are the ones that have a reason (market event) that's none technical and our pattern signals are just confirmation to these market events so that we can try to get the best entry possible into these market event trend reversals.

 

For example, the market is moving upwards between 0930am est to 0959am est...up 3 points and then when a 10am est Economic Report is released the price action suddenly reverse direction.

 

If your lucky and your pattern signal confirms an entry into such a price action...this would be a market event trend reversal while your pattern signal confirmed an entry into such a price action.

 

Simply, your pattern signal that's labeled as a trend reversal signal does not tell you the market will reverse...

 

It has confirmed to you the market has reversed and given you an entry signal into that market event trend reversal.

 

How far it will continue in the new direction is another story.

 

Secondly, there's also a trend reversal that occurs for technical reasons and these are either associated with the following:

 

* Price Action changes in other Key Markets that have a direct impact on the price action in your trading instrument.

 

Basic aspects of intermarket analysis.

 

* Volatility Divergence within your trading instrument that can be measured by comparing one WRB (wide range body) to a prior WRB (wide range body) in your trading instrument.

 

One of the easiest ways to began studying volatility changes is to recognize volatility that is contracting (smaller price ranges) and expanding (larger price ranges especially when they occur as range spikes in comparison to the most recent small price ranges).

 

It's from these volatility changes that many of today's trend reversals are derived (Japanese Candlesticks, Double Tops/Bottoms, S/R Levels, Pivot Points, Volume Analysis, Common Chart Patterns like the Wedge and many other names you may see used at different websites or forums).

 

My point is if you concentrate of learning about volatility itself...it will open the door and bring to light all those other trend reversal methods you've heard about.

 

Reason why there really is not majic forumula nor secrets to spotting reversals.

 

It begins with understanding why reversals occurs and the rest of the journey down that road will lead you to whatever reversal method is suitable for your needs even though it may not be suitable for someone else that's using a different reversal method although the change in volatility is the same regardless to the different trend reversal method that gets labeled to a particular point on the chart.

 

As you can see from the above, I prefer to concentrate on what's causing the price action to do what it is doing prior to getting into the actual pattern signal.

 

It's not a perfect approach to the market (I do have losing trading days) but I prefer to first turn the light on to see what exactly I'm crawling into bed with.

 

Mark

(a.k.a. NihabaAshi) Japanese Candlestick term

 

"Volatility Analysis is a doorway to consistent profits."

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