How To Spot A True Reversal

How To Spot A True Reversal 

• Look for the Possible Swing Candle

This is the 3rd candle in the 5 candle Pattern. A Swing High = 1candle. Higher with 2 candles lower on each side. A Swing Low = 1 candle Lower with 2 candles higher on each side.

       

• Look for Consolidation at a Fib Level

Consolidation is 2 or more candles in a given area

• Look for Reversal Candle (RC) Pattern and Break

- Pin Bars 
- Inside Bar
- 2 Bars Reversal
- Failure Swing Top / Bottom
- Reversed Pivot Top / Bottom
- Naked Reversal
- CPR (Closing Price Reversal)

• Last Swing will be between 30-60 pips if No News is Attached

• Slow Stochastics (SS) Agreement

12:00 – 2:00 Angle for a Long
4:00 – 6:00 Angle for a Short

If a trader is doing the above correctly, the trader should be winning more than they are losing.To be more consistent in picking winning trades, there are Other Factors that require a Live Mentor.
Proper Trend Identification, Time of Day, Session being traded, News, Daily Range, and Recovery Strategies, are all techniques that you will first need to understand. 

There is no substitute for face time and continued practice, once these techniques and strategies are understood, a mentor can greatly reduce a traders learning curve.

       
       

Closing Price Reversal

A closing price reversal is one of the easiest patterns to spot. Price makes a new high/low but gets pushed back strongly and reverses, closing beyond the previous candle’s close.

In the chart below, of the EURUSD H4 chart, I indicated all CPR’s with an arrow.

If you traded in the direction of the overall trend, you would have made some nice money, as you can see. But even when taking ALL trade setups, out of 9, 7 setups would have reached at least 1:1, following the trading and money management techniques.

Just to show you these patterns work on all timeframes, take a look at the EURUSD 5M chart.

I bet you like what you see….. If you now understand you really don't need a whole lot of fancy flashing indicators in order to make an INSANE amount of money in the market, the goal of this strategy has been reached.

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:

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

DOWNWARD TRENDLINE:
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.

Reversed Pivot Top / Bottom

Pivots are a common pattern used in several trading systems. A pivot bottom shows that price has found a level of support. A pivot top on the other hand shows that price has found a level of resistance.
Let’s have a closer look.

The easiest way of trading pivots is assuming the support/resistance level they indicate will hold, and therefore the prices will reverse.

A common way of trading this would be to enter the trade at the close of the pivot confirmation candle (the third candle of the pivot pattern), with your stop at the pivot high/low.

Let’s have a look at the following EURUSD H1 Chart. It is an average Chart from last week, not cherry picked.

Every Green line represents a trade entry, stop loss would go at the pivot low/high indicated by the arrow. Depending on your money management, out of 15 trades, in the picture below at least 12 trades (I circled the arrows) would turn out to be winners. Not bad for 2 days worth of trading….

Failure Swing Top / Bottom

Failure swings are my favorite pattern. They are a clear sign of the inability of price to reaffirm a new high in an uptrend or a new low in a downtrend, which gives us the opportunity to spot a trend reversal before most do.
This is what they look like:

As you can see, this pattern is as simple as 1 - 2 – 3, but VERY powerful. A very common way of trading failure swings is trading the breakout of Point 2, with your stop loss above Point 3 when going short, and below point 3 when going long.

2 Bar Reversal

The 2 bar Reversal identifies a possible trend reversal.
The first two bars must trade in the same direction and be trending bars. The third bar reverses the trend direction by taking out the low of the second bar (for short) or the high of the second bar (for long).



The Bearish 2 Bar Reversal

1. Bar 1 has a higher high, higher low and a higher close.
2. Bar 2 has a higher high, higher low and a higher close than bar 1.
3. Bar 3 reverses the trend by trading below the low of bar 2.





The Bullish 2 Bar Reversal

1. Bar 1 has a lower high, lower low and a lower close.
2. Bar 2 has a lower high, lower low and a lower close than bar 1.
3. Bar 3 reverses the trend by trading above the high of bar 2.


How To Trade the 2 Bar reversal
Bullish 2 Bar Reversal:

•  Buy 1 pip above the high of bar 2
•  Place your stop loss at the low of the breakout bar 3.
• 
  

Bearish 2 Bar Reversal:

•  Sell 1 pip below the low of bar 2
•  Place the stop loss at the high of bar 3.

Below is a EURUSD Daily chart. It is obvious this system has the possibility to get you into swing trades at the best possible level.

Pin Bars

The Pin is a reversal pattern that indicates a change of trend.

The term “Pin Bar” is an abbreviation for the term “Pinocchio Bar”. It is a 3 bar pattern with the high of the middle bar towering over the highs of the bars on both the left and the right. The middle bar should look like a pin, standing out like the proverbial sore thumb. The pin bar will signal both bullish and bearish trends.

 Examples of the Pin Bar Formation in Action:

Please notice how the middle bar for both the bullish and bearish pin bars stand out between both the candles on the left and the right.

























How to Trade a Pin Bar Formation
To effectively trade the pin bar formation, you need to first make sure it is well-defined, (see above characteristics). Do not trade just any bar with a large wick. You want the nose of the bar to really stick out and preferably, you want to be trading in the direction of the overall trend.

For a Bearish pin bar:

• sell on a break of the pin bar low, and
• place a stop loss 1 pip above the pin bar high.

For a Bullish pin bar:

•  buy the break of the pin bar high
•  set the stop loss 1 pip below the pin bar low.