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Reversal trading Strategy – How to Identify a reversal trading opportunity

Reversal Trading Strategy

There are plenty of Reversal trading Strategy available for traders. Forex analyst and expert traders are continuously working on price reversals and trying to establish some successful trading strategies based on that. Today, we would like to make you guys familiar with some newer approaches of reversal trading strategy. When people hear that you trade reversals they immediately believe that you try to predict a change in direction.

It is very important to understand that the reversal trade is not a trading style that predicts if the markets will develop and attempt to trading the absolute high and low, but the reversal trade can (and should) be something very different. The best traders of reversal do not predict, but wait for clear signs that the market has already become. reversion trade then moves to “predict the price” to “price after” – or as I like to call it “next reversion”.

How to trade with Reversal Trading Strategy

Trade and the construction of an edge is all about stacking the odds in your favor. However, it is important to focus on what is really important and to avoid what is called “paralysis by analysis”, which exists when you add so many tools, indicators, rules and filters of prices its method to make a commercial decision becomes too complex.

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When it comes to its trading methodology, ask yourself what you want to achieve and what the premise that your system is and then pick up the tools accordingly. If you are a follower of tendency, which you want to search for movements of high momentum, preferably a break of support and resistance, with plenty of space and the support of the address and / or fundamentals higher time frame. If you are a trader who search reversal fading momentum, areas of support and resistance that can not break the confirmation price. The following three pillars describe what to look for in a reversion trade:

1) Use price action to get an indication of reversal

Most important investment price patterns are the 3 inside of above, the Spike bar, 3 Black Crows and enveloping pattern. Both own patterns is not, but what the trajectory of prices informs you about the underlying dynamics. The following screenshot shows a recent reversal trading and 3 pattern inside until finally confirmed the reversal.

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2) Divergence of the Momentum for Reversal trading Strategy

Fading momentum is important! While many traders reversion simply try to trade out of the previous support and resistance (which is predicting), waiting for that impulse confirmed fading, can make a big difference. The RSI  or the stochastic indicator are good options when it is analyzing the differences in movement and the image above shows a reversal of the trade with a clear RSI divergence (among all the other signs of reversal).

3) Identify area of Interest for reversal trading  

The last main pillar of an investment strategy is to find the reversions that occur in an area with pricing logic. The majority of traders make the mistake that only has to look for a divergence in their indicator and then expect that somehow trade is going to run while that trading of prices somewhere in the middle of nowhere.

Taking investment trading that occur in the price are “correct” is the key! For that you should start looking for false breaks of support and resistance levels or previous minimum and maximum. Fibonaccis are another tools to help you to understand this market; Check the screenshots show.

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If all these things come together, often is a very accurate signal of an impending market reversal. On the other hand, in the time to see all 3 things in your charts, price will become the opposite direction, and “reversion predict” becomes “anticipation of investment”.

About the author

Saimon Akash

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