Special Articles

Profitable Reversal Trading | The 5 rules of Trade Transitions

Profitable Reversal Spread Bet Trading Strategies Training

Have you heard of the term “Profitable reversal Trading?” Probably yes! Today we are going to discuss on this topic so that you may have a better understanding of trend trading.

Profitable Reversal Trading

If you are a technical Trader, you must be specialized in only trade system until you feel comfortable with trading strategy in a cost-effective manner. A trader who focuses on a unique configuration will quickly gather all the subtle nuances of his configuration and can then easily become the expert around a pattern. Profitable Reversal Trading something that you wont see much of the traders are following to trade the market.

In my own trading, I decided a few years ago I was only going to make reversals trade. This decision allowed me to quickly take my business to a whole new level. Today I might not be able to interpret the entire market all the time by using of fundamental and/or technical data, but when it comes to trading I found that i understand the market than the average traders.

In this article, I want to highlight 5 important concepts in Profitable Reversal Trading, that can help you avoid common trading mistakes.

Rule 1: Level of support / resistance alone is not enough

This is the first and most expensive error traders make. Never blindly buy a level of support and not to sell to a level of resistance.

Many traders were looking at 1.1215 in the EUR / USD and many traders approached me saying that they were buying at that level when the price moved into it, hoping for a change; the key word here is hope. If you want to trade reversals, blindly buy a level of support or sell on a resistance is the worst thing that can be done and it shows that you are trying to predict the market turns. It’s like jumping from a moving train, with the hope that will stop suddenly – but you usually simply crushed. The next 4 points will help you to escape from the trap of prediction.


Rule 2: Your insurance – lose the first and the last part of a movement

To exit from this mode of thinking about forecast, you should feel comfortable with the lack of price movements. This may sound strange, but you will make a big difference in your trading.

So, instead of buying as soon as price reaches a level of support, the confirmation that the price is actually to find sellers and actually rises expectedly. The following screenshot shows a recent USD / CAD trading long of mine. I went long after price already went up and closed my long trade before price reached the top.

I call this my insurance principle and which will help you to stay away from those “catching a falling knife” types of trades and also does not try to mount trading far too long and then return the benefits. New traders struggle with this because they believe that they can get good trading opportunities before and then do not expect confirmation – that you will obviously cost a lot of money.


Rule 3: strong vs weak demand

The EUR / GBP is another classic example from last week, where many traders interpreted and the history of prices used falsely. We will pass through the points (1) and (2) separately and see how the history of prices could have helped make better decisions.


Fact 1: Why support did not stayed:

A lot of traders were looking to 0.773 in EUR/GBP and many I wrote that they bought there (without waiting for confirmation again). Obviously, you can see that the level was not maintained and if we keep trading such levels blindly with pending orders, we will only get slaughtered.

At the same time, when you look to the left, we can see that the last time was the price at this level, was kept there for quite some time. conventional technical analysis tells you that this is a strong level, but common sense suggests that this is not the case. Just think what this price behavior says: if price manages to keep at a level for an extended period of time, then the price shows that there was a balance between buyers and sellers. However, so there is a strong movement of prices which need a great imbalance.


Point 2 – Price takes off focusing on imbalance:

when we go to point 2 on the right, you can see that we are beginning to see more buyers coming and price stopped the downward trend. When we look to the left of the last quote time had been at this level, you can see the strong reaction: price sell-off in it and invest immediately in a candle; This super strong reaction shows the great imbalance and validates the level and makes a much more likely investment. So this is the point that we are waiting for. We will trigger the BUY button and will get healthy profit.

Rule 4: The Trend lines, angles and impulses

When I started looking at trading, I was using trend lines and, especially, the angle and this information was very useful to understand the dynamics of momentum. AUD / NZD is a great example of recent time and you can see how the moving average of the trend-line still going lower (58, 9, 21). This indicates that the minimum of swing are becoming less steep and that sellers are not able to push so cheap anymore.

Once again, this just isn’t enough to get that in a long trade. It only means that the downward momentum is diminishing. It is a reversion to the likely rise, but I could also see a consolidation until a new wave down. This is where we get to the “change of momentum”.  And before we enter a trade we should wait and see if the market strong enough to make a uptrend rally.


Rule 5: The change of Momentum Signal

All the above points are the prelude to how to identify possible trading periods. The final piece of the puzzle is then, what I call, ‘change of momentum’, which is what I put on the trade.

The EUR/GBP is a good example of this: price was on an uptrend and then formed a top – this was, similar to the fading line of trendline-angles information and demonstrated that the impulse within the trend was changing. The next impulse strong bear candle that broke through the moving average was the confirmation signal to enter a short trade. This is also the signal of “insurance” that will get you away from trying to call tops and bottom since you’ll only enter a reversal after price is already going into the new direction. What i call – a confirmation.


As you can see, the Profitable Reversal Trading can be much more than attempting to call upper and lower parts. This approach is also the best example of why you should start to specialize in a pattern of trade. During the years of trade transitions exclusively, my understanding of rollback scenarios has become increasingly better and just trying to dominate a very specific trade concept, you will be able to quickly become relatively good in it.

If you wish to read more on Profitable Reversal Trading, consider reading this article on daily fx. If you have anything to share, please don’t forget to comment. Thanks in advance.

About the author

Denis Akash

Add Comment

Click here to post a comment

Your email address will not be published. Required fields are marked *




  • analystfx-small.jpg
  • analystfx-small.jpg
  • medium.jpg
  • medium.jpg
  • medium.jpg
  • medium.jpg

Recommended Forex Broker

  • banner-300x250-gif-animation-2.gif