" Don't trade against the trend " You may have heard the phrase "don't trade against the trend" a million times, and your ears may be calloused, but if you do it right, trend reversal trading can be crazy profitable, so how to do trend reversal What about the deal? Let's talk slowly below!
Mistakes You Can Make in Trend Reversal Trading
1. Reverse and go long in a downtrend
For those sharp downtrends, you are long the market when you are not sure, just like the picture below:
At this time, it is meaningless to grasp the trend reversal, because logically, you are long at this point, there is no place to place a stop loss, and there is no support position or market structure to refer to.
The trend needs time to reverse its direction. It needs to attract more people to enter the market. Take the above picture as an example. When more and more people go long, even until no one goes long, then the trend is reversed. .
2. The first retracement to do long
Many traders make mistakes when they first retrace, what does that mean? Take the following picture as an example:
When the price is falling back, many traders will go long at this time, but the trend has not changed, and it is still a downward trend. This is what people often ask, how to judge whether the retracement is really a reversal.
So how do we determine whether the trend is reversed now? Let's first understand the four stages of the market. It will be beneficial to read it!
The market can be divided into four stages:
1. Accumulation stage
2. Advance stage
3. Release stage
4. Declining stage
What does that mean? Take it easy!
1. Accumulation stage
The accumulation phase looks like a range-bound market in a downtrend, but judging by the trading volume, buyers and sellers are in balance at this time;
Generally during the accumulation phase:
The ratio of bullish candlesticks to bearish candlesticks is close
50-period moving average flattening (using 50MA)
The price fluctuates back and forth around the 50MA (as shown below)
The consolidation phase is not yet certain that the market will reverse from here, but it is there to remind you of the possibility that the bulls may take action to push prices to the highs of the range.
2. Promotion stage
This phase is essentially an uptrend, with prices making higher highs and lows, and judging by volume, the bulls outweigh the bears. Usually at this stage:
K-line bullish versus bearish
The bullish K-line is greater than the bearish K-line
The price is above the 50MA
50MA points higher
The push phase eventually requires a "rest" as early investors who are long are about to profit and are ready to sell their orders at a time when sellers are also ready to short the market where it is attractive.
3. Release stage
Buyers and sellers are in balance during this stage, usually during this stage:
The ratio of bullish candlesticks to bearish candlesticks is close
50MA flattening
The price fluctuates back and forth around the 50MA
Like the first one, it is not sure that the price will reverse at this time, but this has already told you that the bulls may become weaker when encountering resistance, and there is a possibility of turning short.
4. Declining stage
A down phase is essentially a downtrend, usually in a down phase:
Bearish K-line vs. Bullish K-line
Price is below 50MA (reference)
50MA points lower
How to Spot Trend Reversals Like a Pro
1. Identify support on the higher time frame (daily chart )
First determine the support and resistance levels on the daily chart, the more important the level, the better the effect.
2. Determine the accumulation phase of the lower time period (1H)
Now let's narrow down the time frame a bit, and what we're looking at are the price lows on the smaller time frames, the price lows of the accumulation phase and the support points on the larger time frames.
General guidelines: first identify support on the daily chart, and then find an accumulation stage on the 1H chart. In the subsequent entry stage, stop loss and take profit can refer to the previous bullish engulfing line trading strategy!
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