Hello fellow Lions!
We're talking about trading, strategies, take-profit and stop-loss prices.
Last post was about finding the best entry point.
Today's topic:
Reversal
A #reversal can be used for extremely good entry points, but also as great exit points!
But...
How do you spot these reversals?
Many would say, you look for a long wick on a candle, going the opposite direction than the price, like this:
While this is true in many, many cases I have also often seen that a reversal indicated by this behavior has liquidated me.
It happened with $TRB less than a year ago in a matter of minutes, with a signal just like the one above. So I did a sell order. $TRB sky-rocketed basically right after.
This particular trade was, by accident, done as a cross-margin, so I liquidated my entire holding on that trade. Very nice, huh?
However, it is commonly known as a correct reversal signal.
Anyway, back to topic!
Using the reversal
What is the best use-case of a reversal?
If you are already in a trade, I would recommend you to use the reversal as an exit point. Of course, there are requirements for this.
If our trade is in profit and the reversal is signaling the trade is about to go in the opposite direction that what your trade is (if you have a buy trade and the reversal is signaling bearish momentum), this is a good time to exit the trade - or even close the buy order and create a sell order (or vice versa).
Entering a trade based on reversal signal
Finding the reversal to bullish (bullish rejection block) is simply a swing low, with a long wick, usually displayed on the chart like this
bullish rejection block, swing low
After this pattern is formed, you want to see a strong move upwards.
After this move, we look at our recently formed pattern and mark the low of the wick and the body of this candle, like this
This area will now work as our entry point and is where we went to enter our buy trade.
Set you stop loss 1-3% below the swing low (depending on your risk tolerance) and the take profit at the high of the previous move.
When price enter the buy-zone we marked previously, our buy-order will be triggered, and with our TP and SL prices set, watch the magic happen:
This strategy goes very well with yesterday's article about finding the entry.
While this strategy is a good way to find entry points too, I mainly use it to exit trades... unless I am trading emotions - which happens during bullish markets 😂
However, I like using entry points as explanation for how the strategy works - because my explanation skills suck enough as it is, so trying to explain when to exit a trade would be... jibberish 🤣
If using this strategy as entry point, I would suggest doing it in a sideways market, as it is great for that. Can make a lot of gains is sideways moving markets, although the signals may be a bit less clear.
If you see momentum that follow your order, you can take profit (partial close your trade) and see your trade possible make more pure profit.
Thank you for reading
I hope you feel ready to take on trading!
Until next time
Take care friends!
tag list
#trading #reversal #tsig #strategy #finance #leofinance #takeprofit #stoploss #momentum #bullish #bearish #crypto #inleo #signals