A reversal is a term used to describe when a trend reverses direction. For example, the market has been in an uptrend and when the price hits a major resistance level, it reversed and formed a downtrend. That’s what reversal means.

Now, where can reversals happen? The following are the major areas where price reversals do happen:

Support levels
Resistance levels
Fibonacci levels
Here’s an example of price reversing form a support level and went up and then later broke it and went down. Now that broken support level acts as resistance level when the price came for a re-test of the level and sent the price tumbling down:

REVERSALS & CONTINUATION-price action trading strateggy

So the big question is: how to spot trend continuity and execute trades at the right time?

The secret is in the identification of specific chart patterns as well as very specific candlesticks patterns and you will discover more on the Chart Patterns and Candlestick Patterns section of this course.

Top 3 reasons why it is so important for you knowing reversal points/levels as well as understanding trend continuity patterns and signals:
You don’t want to be buying near or at a resistance level (which is a reversal point).
You don’t want to be selling at near or at a support level (which is a reversal point).
You don’t want be buying when the trend is down and you don’t want to be selling when the trend is up that’s why you need to know about continuation charts and candlestick patterns which will allow you to trade with the trend. (There are exceptions though when you can trade against the main trend like that like in trading channels…see Chapter 9 of this price action trading course where it talks about: How To Trade Channels)

Market Price moves in swings. A price swing is when markets move like what a wave does.

So in an uptrend, the price will be making higher highs and higher lows like the figure shown below:

higher high and higher low in an uptrend swing

So in an uptrend, price moves in swings like this chart shown below:

upswing and downswing explained

And in a downtrend, the price will be making lower highs and lower lows:

REVERSALS & CONTINUATION-price action trading strateggy
So in a downtrend, price moves in swings like the chart shown below:

REVERSALS & CONTINUATION-price action trading strateggy

3 Reasons Why It’s So Important For You To Understand Market Price Swings
If you want to be really good price action trader, you have to understand this concept of how price moves in swings. This is especially true if your style of trading is trend trading or swing trading.

Because if you don’t understand how price moves in swings, this is what you are going to end up doing:

You will execute trades at the very wrong spot! For example, in a downtrend, you will sell when the market is just doing an upswing! Not good!
Which means, you will get stopped out or you need to put in a large stop loss. Large stop loss does not necessarily mean large risk if you do position sizing based on the stop loss distance. But if you don’t then that’s a large risk you are taking.
If you have a large stop loss, then you’ve got to wait a while before the market makes downswing before you to start seeing profits on your trade.
Here’s an example of what I’m talking about:

REVERSALS & CONTINUATION-price action trading strateggy

It’s really not a good situation to be in. Every trader wish is that “the moment a trade is placed, it goes to profit immediately.” But we know the market is not like that, sometimes that happens, and sometimes it doesn’t.

That’s the nature of the market.

So in an uptrend, you should be looking to buy on the downswing. In a downtrend, you should be looking to sell on an upswing.

And the best way for doing that is by using Price Action (reversal candlesticks) as shown below:

REVERSALS & CONTINUATION-price action trading strateggy

Now, these charts below is what actually happens in real life trading environment:

REVERSALS & CONTINUATION-price action trading strateggy



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22 Jan 2019 10:52 am Posted by admin