Saturday, November 17, 2012

Naked Reversal

A naked reversal is based on nothing more than a trend line break.
It is a 2-step technique:

You first want to draw in a proper trend line. To do so, let me give you a proper definition:

From the lowest low to the highest low before the highest high, without cutting through any candle bodies.

From the highest high to the lowest high before the lowest low, without cutting through any candle bodies.

Also, you would want price action to touch your trend line at least twice, preferably 3 times, in order for it to be a valid trend line.
Once your trend line is on your chart, you wait for a candle to BREAK through that trend line. When this break occurs, you will look at the last candle high, higher than the high of the candle that broke through the trend line. That high will be your entry point.

Vice Versa for short.

  • Wait for a trend line break to the downside
  • Look for the last low, lower than the low of the candle that broke the trend line
  • Place a sell order when that low gets broken.

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