Trading on trend reversals

Trading on trend reversals

Trading on trend reversals

Today we will talk about trading on trend reversals. We will also look at the signs that determine the reversal trends in the Forex market. In addition, here we will show a strategy based on a trend reversal.

Let's note that Forex trading will be much more effective if the trader already knows how to distinguish market phases, draw trend lines, and see what Elliott waves look like. Are you wondering why this is the case and not otherwise? Without this, it will be difficult to determine the reversal trends that take place in the Forex market.

How many times have we seen the price rise or fall rapidly, but after a while there is a kind of attenuation (market flat). The price continues to hang out in a narrow range. Just at such moments, you need to know the signs of a trend reversal in order to know your next actions. After all, the trend may continue, but there is some probability of its reversal.
The definition of a trend reversal

Spotting a price reversal within the financial instrument in question in time is a necessary and important skill for any trader. On this topic, you can find a lot of diverse information on the Internet – from theories to practical manuals.

You can determine the trend reversal using graphical methods. They serve as fairly reliable trading signals, and if you practice, say, on a demo account, you can eventually achieve excellent results in trading.

All technical analysis figures have price confirmation, so below we will try to show you the most common Forex figures and show you an example of how To determine the trend reversal on them.

Often we are prevented from seeing a particular reversal model of the problem associated with psychology. If we want to see, for example, the “head and shoulders” figure, we will see it on almost every currency pair.

Similarly, with the continuation of the trend. If a trader's Forex strategy is focused on long-term trending markets, then it is in their best interest to see exceptionally long trends and not fall for reversals.

In other words, if one or another candlestick model of technical analysis is formed, this does not mean that in the near future we can expect a trend reversal or a continuation of the previous one.

To increase the chances, you need to see certain conditions that significantly increase the chances of a particular outcome of events.

Important: any figure of technical analysis can be reborn into a completely different figure or into obscure zigzags after some time. But this does not cancel the right to conduct technical analysis on Forex.
How can I detect a trend reversal without indicators?

The first thing you can do is draw support and resistance lines and trade for a breakout or rebound from these lines:
Today we will talk about trading on trend reversals. We will also look at the signs that determine the reversal trends in the Forex market. In addition, here we will show a strategy based on a trend reversal.

Let's note that Forex trading will be much more effective if the trader already knows how to distinguish market phases, draw trend lines, and see what Elliott waves look like. Are you wondering why this is the case and not otherwise? Without this, it will be difficult to determine the reversal trends that take place in the Forex market.

How many times have we seen the price rise or fall rapidly, but after a while there is a kind of attenuation (market flat). The price continues to hang out in a narrow range. Just at such moments, you need to know the signs of a trend reversal in order to know your next actions. After all, the trend may continue, but there is some probability of its reversal.
The definition of a trend reversal

Spotting a price reversal within the financial instrument in question in time is a necessary and important skill for any trader. On this topic, you can find a lot of diverse information on the Internet – from theories to practical manuals.

You can determine the trend reversal using graphical methods. They serve as fairly reliable trading signals, and if you practice, say, on a demo account, you can eventually achieve excellent results in trading.

All technical analysis figures have price confirmation, so below we will try to show you the most common Forex figures and show you an example of how To determine the trend reversal on them.

Often we are prevented from seeing a particular reversal model of the problem associated with psychology. If we want to see, for example, the “head and shoulders” figure, we will see it on almost every currency pair.

Similarly, with the continuation of the trend. If a trader's Forex strategy is focused on long-term trending markets, then it is in their best interest to see exceptionally long trends and not fall for reversals.

In other words, if one or another candlestick model of technical analysis is formed, this does not mean that in the near future we can expect a trend reversal or a continuation of the previous one.

To increase the chances, you need to see certain conditions that significantly increase the chances of a particular outcome of events.

Important: any figure of technical analysis can be reborn into a completely different figure or into obscure zigzags after some time. But this does not cancel the right to conduct technical analysis on Forex.
How can I detect a trend reversal without indicators?

The first thing you can do is draw support and resistance lines and trade for a breakout or rebound from these lines:
Naturally, within this level, a trend reversal in the Forex market is a rare phenomenon.
The breakdown of price channel

There comes a time when the price going in the channel goes out of it. In other words, the support or resistance lines will be broken. These are the first signs of a trend reversal and you need to be prepared for this.

However, do not forget about such a phenomenon in Forex as a false breakout. Here's how, for example, here:
In such cases, it is best to draw the boundaries of this false breakout and place a pending order of the Sell Stop type below its boundaries.

In other words, in place of the signal candle, we automatically enter the market with a Sell Stop order, as this is a clear sign of a trend reversal. In this case, the Take profit value can be equal to half Or the entire width of the channel. The stop loss is set for the nearest local price maximum.
The figure of “Head and shoulders”

Here's how you can enter the market by noticing the “Head and shoulders "" figure on the chart”:
Once again, we will focus Your attention on the fact that the ""Head and shoulders"" figure is a fairly strong formation. As soon as the neck zone is broken, we can talk about a trend reversal. In this particular example, the trend changed from upward to downward.

We can also see that after the neck was broken, the price began to consolidate in order to test the neck zone. After all, this is where most indecisive traders set their Stop Loss. When they were collected, the price turned around and went down.
Double top or double bottom
The figure of graphical analysis called “Double top or double bottom” is a good way to trade on trend reversals, since it gives a reliable signal of a trend change just like the “Head and shoulders” formation.

For example, this formation looks like this:
As we can see, the price has drawn a “Double top "" shape. After breaking through the support zone, the price moved away from it for a certain distance, and then began to test. But here, support has already turned into a resistance zone. If it does not break through it and does not gain a foothold on top, it can be considered a trend reversal.

Knowing these figures of graphical analysis, trading on trend reversals will become even more profitable.
Triple top or triple bottom
As you may have already guessed, in addition to the “Double top and double bottom” shapes, there are graphical models called ”Triple top or triple bottom"". This is a modified formation of the ""head and shoulders"" graphic shape, as well as a ""double top"".

On the chart in MT4, IT may look like this:
By the way, trading on trend reversals will be conducted according to the following strategy. First, we see that the top reaches the same price value several times and then rolls back, so we draw a resistance line on their peaks. We do the same with downward price pullbacks – draw a support line. Then we wait for one of these lines to be broken. After a while, we see that it was the support zone that was broken through. Thus, we dare to assume that it was a ”triple top "" figure. This gives a strong signal for a price reversal from up to down. In addition, during the breakdown of the neck line, there should be increased volumes.
Trend reversal strategy"

If you are a novice trader and Do not have a proper command of graphical analysis, then you will need the following indicator strategy for a trend reversal. Let's look at one of the simple but perfectly working strategies that shows signals on a trend reversal. It allows you to calculate the strongest zones where overbought and oversold conditions are observed.

This trading tactic involves the use of only two Forex indicators. Its profitability is 75%. One of the 2 tools of this vehicle is a modified RSI indicator. The undeniable advantage of the second channel indicator is that it does not show the oversold and overbought areas, but shows the price movement in the channel.

The advantage of the second one is that it does not show overbought or oversold zones in the trend, but moves in the channel. With its help, trading on trend reversals will only be a joy, since more than half of all transactions will be closed on profit.
Advantages of the trading system

Consider the undeniable advantages of using this trading system:

Intuitive use.
It works well on trading signals regardless of the selected asset and timeframe.
Signals are not redrawn, as you can see by scrolling through the chart history.
Despite the small number of signals, it provides high profitability.

Example of BUY deals

If we talk about examples of BUY trades within the scalping strategy, the following algorithm should be performed:

Open the M5 timeframe.
We look at the modified RSI indicator. It should break through the lower border of the channel.
On the price channel, the candle should also break the price channel down.
We wait for the signal candle to close and enter the market with a BUY order.
Example of SELL transactions

For the right to consider SELL transactions, the following conditions must be met:

Setting the M5 timeframe.
Let's see what the modified RSI indicator shows. It should go beyond the upper limit of the channel.
Then we look at the price chart, in particular, pay attention to the Japanese candlesticks. They should go beyond the upper limit of the channel.
We wait for the signal candle to close and enter the market on SELL.
As you can see from the screenshots above, we can use this trading strategy to get reliable signals for price reversals. With this system, you can get high – quality and powerful pivot points, although there is one drawback- a small number of signals.

You can download the indicator and template for this trend reversal strategy below.
Conclusion

Above, we reviewed the most common Forex figures of graphical analysis. They also showed how to determine the trend reversal. In addition, we have studied a trading strategy based on trend reversals.

Follow the rules of money management, fix your profit on time and you will be happy

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