Don't Miss Out on the Next Big Market Correction: Learn How to Trade Trend Reversals for Market Profits.
GPSM | Will Bell | September 2nd, 2023
The phrase "Don't trade against the trend" is one you've undoubtedly heard a million times.
Likewise, I have stated to members, and subscribers my own stance on trading against the trend, but here's the point...
Trend Reversal Trading may be insanely rewarding, but only if you know how to do it correctly as with all trading techniques.
Think about it for a second:
When you know where to look for high-probability Trend Reversal points that allow you to identify market tops and bottoms with greater accuracy than ever before, you can identify probable trade setups that have a very high risk-to-reward ratio of around 1-6
Now…
I understand that it appears to be too sweet to be true...
...I mean come on Will a I - 6?
But it’s true.
Because after this easy-to-understand, yet hard-to-execute training post you’ll discover the secrets to trading Trend Reversal like a master trader.
Caveat Emptor - You'll have to put these trading techniques into action.
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In This Training Article, I'm Going To Reveal To You These 5 Keys to Winning Trend Reversal Trades...
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The most expensive mistakes traders make when trading reversals
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The four stages of the market and why understanding them is important for a Trend Reversal trader
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How to find Trend Reversals with lethal accuracy
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Trading setups for trend reversal that are effective
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Trend Reversal entries, exits, and stops
Okay guys let’s start here
Do you make any of the 2 major mistakes below when it comes to Trend Reversal Trading?
The problem is this… Trend Reversal Trading has the potential to be a very profitable method to use when you're trading the markets.
To be sure, there are correct and incorrect ways to implement this trading technique though, just as there are for every other trading method.
Before I show you how to do it correctly, allow me to explain how not to Trade Market Reversals in 2 major mistakes traders make.
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You're catching a stock that’s not hit bottom. [fallen knife]
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You're buying a price before the first pullback on the trade.
#1 - A Stock That’s Falling And Has Not Hit Bottom
In case you're unfamiliar with the term "Catching a Falling Knife," refers to the act of trying to long the markets or a particular stock while the stock market is plummeting like lead.
Here’s an Example of a Falling Knife Chart.
Whenever I’m asked, I always refer to the wisdom of Poor Williams Almanac which says...
“Only gluttons for pain try to catch a knife that's falling.”
There is no logical place to set your stop-loss; there is no Support or market structure to which you can adhere for a pricing bottom.
As a result, the only method to set your stop loss is to set a cash stop from your brokerage account, which is an almost certain way to lose and take a loss.
As Poor Williams in his almanac says "Rome was not built in a day… a day and a half maybe, and no significant price movement of importance can be established in a single trading day, or possibly in a single week."
It will take some time for the falling price to follow its logical path bearish during the price action move.
Changing price action trends take time to reverse.
The fallen knife still has to pull in traders who still believe in the company to buy in at a false bottom, and expect for the stock to turn around at that false bottom pricing until there is no one left to buy.
Then the stock will bottom out on its price, and travel price action-wise in the opposite direction of the previous trend.
2. You're About To Enter The Trade on The First Pullback In a Fallen Knife.
Another costly blunder that traders make during Trend Reversals is attempting to trade the first pullback that occurs on the charts.
This suggests that you should go long when the market begins to recover after a significant loss.
However, this type of rise is frequently nothing more than a retracement of the existing trend.
Here's what I'm talking about:
Chart Example Below: At Swing Low #1 Traders Wrongly Enter Into the Trade Thinking the Fallen Knife is Over. [Results; Stock Price Falls Lower from False Bottom]
As Poor Williams says in his Almanac “Traders get impatient and because of the fear of missing out on a major price reversal they make this Type 2 Mistake.
In order to ensure that you don't miss out on the next big move, you enter the market immediately after the markets exhibit signs of reversal.
In most cases, this signal represents an unintentional retracement of the current trend. Even if you do manage to catch the bottom of the knife, it is improbable that you will be able to hold onto the trade for very long.
Why?
Consider your own trading behavior...
You'd undoubtedly tried to capture market bottoms on a regular basis before reading this article…
...And, in the process, you'd have endured a number of setbacks, which would have been detrimental to your psychological well-being.
When you eventually find a bottom in the markets, you will not be able to hold onto the trade for long because you will be plagued with the dread of losing your investment (from your earlier trade losses).
As a result, you are forced to abandon your trades faster than you should, and you miss out on the major move.
Let's move on from here...
The Four Stages Of The Markets And Why They Are Important.
First and foremost...
You must comprehend the four stages of the markets in order to recognize Trend Reversal signals. The simple reason is that it provides you with the best price alerts when market conditions are going to change.
This heads-up allows you to plan your trade decisions ahead of time.
The Markets Can Be Divided Into 4 Stages, Which Are As Follows:
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Accumulation stage
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Advancing stage
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Distribution stage
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Declining stage
1. The Accumulation Stage
The Accumulation Stage resembles a range market in a downtrend, which is what it is.
Nevertheless, from the perspective of order flow, the buyers and sellers are in equilibrium (which is why the market is in a range rather than a moving bullish or bearish).
Generally speaking, when in the Accumulation Stage, you'll find:
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The ratio of bullish candles to bearish candles is quite close to one.
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The 50-period moving average is becoming increasingly flat.
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The price oscillates around the 50-period moving average, which is a key technical indicator.
As traders long around the lows and short near the highs of the range, stops will eventually build up beyond the range as the market moves further out of its range.
Now please keep in mind…
...There is no certainty that the market will turn around from where it is currently.
Although this signal indicates that the bears are becoming increasingly weak, it also indicates that the bulls could seize control and drive the price higher than the highs of the range.
And when this occurs, we are moved on to the next phase of the process...
2. The Advancing Stage
This is where price establishing higher highs and lows rise effectively in an uptrend at this point.
From the perspective of order flow, the purchasing pressure outweighs the selling pressure (which explains why the market is heading upward at that moment).
Generally speaking, we are in the Advancing Stage:
There are more bullish candles than bearish candles on the chart. The size of the bullish candles is greater than that of the bearish candles.
The price has risen above the 50-period moving average (green line). The 50-period moving average is heading upwards at the moment.
Now at this point…
It is inevitable that the Advancing Stage will have to "slow down" since the earlier buyers will take their profits. Sellers will attempt to short the markets at this point because prices are currently at very appealing pricing levels.
When this happens, we will move on to the next phase...
3. The Distribution Stage Of The Process.
The distribution phase resembles a range market that is experiencing an uptrend.
It indicates that the buyers and sellers have reached a state of equilibrium (which is why the market is in a range rather than a moving market).
Generally speaking, throughout the distribution step, the following is true:
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The ratio of bullish candles to bearish candles is quite close to one.
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The 50-period moving average is becoming increasingly flat.
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The price oscillates around the 50-period moving average, which is a key technical indicator.
As time goes by, stops will gradually build up beyond the range as position traders long near the lows and short near the highs of that range.
Keep in mind that there is no certainty that the market will turn around from where it is currently.
However, it serves as a warning that the Bull Traders may be waning and that the Bears may seize control and push the price lower...
...below the lows of the range if the trend continues.
4. Declining Stage
The Declining Stage is essentially a downtrend, with lower highs and lows being recorded by the price. Generally speaking, we are in a pricing deteriorating stage:
There are more bearish candles than there are bullish candles. When comparing bearish candles to bullish candles, the bearish candles are larger.
The price is trading below the 50-period moving average (green line). The 50-period moving average is indicating a downward trend.
At this point, the Declining Stage will eventually need to "take a break" since the early sellers will take their profits and buyers will try to buy long positions in the markets because prices are at favorable levels.
When this occurs, we are thrust back into the phase of accumulating material.
Understanding When a Trend Is About To Reverse Like a Pro
You're probably thinking...?
How do I know if the market will break higher out of the Accumulation Stage and not just continue trading lower?"
That is an excellent question.
The Key Lime is this...
You want to discover an Accumulation Stage... on a stock... that presses against the Support on the higher timeframe.
Here's how you go about it:
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Determine the level of support over the longer duration (e.g. Daily)
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Identify a stage of Accumulation within a shorter timeframe (e.g. 1 hour)
Allow me to explain...
1. Find support over the longer duration time frame (Daily);
Look for signs that the market is approaching Support on the Daily timeframe; the greater the significance of the level, the stronger the sign.
2. Identify the Accumulation Stage within the shorter timeframe (1-hour);
Then, work your way down to a lesser timeframe and look for the Accumulation Phase.
On the upper timeframe, you want to see the lows of the Accumulation Stage lean against Support, which is what you want to observe.
As a General Rule of Thumb:
Support on the Daily Timeframe can be used to indicate an Accumulation Stage on the 1 to 4-hour period if Support is identified on the Daily timeframe.
Alternatively, if Support is located on the Weekly timeframe, you can identify an Accumulation Stage on the 4-hour to Daily timeframe.
Trading Setups for Trend Reversals That are Effective
There are 3 strategies to trade this setup at the moment:
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Support and Resistance
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The Breakout (also known as Breakout)
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The Pullback
This type of configuration will be found somewhere between the 1 and 4-hour timeframes if you are using the Daily and 1-hour timeframe combination.
Fortunes are made by buying low and selling too soon. - Nathan Rothschild
Support & Resistance
If you haven't already understood it, the low of an accumulation stage is a strong area of Support (and it also leans against the upper timeframe Support).
So, if you anticipate higher pricing in the future, wouldn't it make sense to invest in this area?
Here's what I'm talking about...
Pros To Support & Resistance:
Because you're entering the move at its earliest stage, the risk-to-reward ratio is extremely favorable in this situation. Consider the potential return you could receive if the market moves out of the accumulation stage.
Cons to Support & Resistance:
It is possible that the price will not re-test Support, and that you will not receive an entrance signal.
The Breakout (also known as Price Breakout)
As well guys, while you're looking to take a position on a trade you can sit back and visually watch for the price to break out higher before entering the trade.
Pros To a Breakout:
As the market transitions from an accumulation stage to an advance one, you will be able to track every step.
Cons To a Breakout:
False price breakouts through level 1 resistance happen all the time.
The Pullback
Finally, you might wait for a pricing Pullback in the market price to occur before placing a trade.
For instance, when the price retraces to the previous Resistance it hits Support and produces a bullish Reversal Candlestick Pattern.
The market or that trade then is considered highly bullish.
Pros and Cons to Playing The Pullback:
Pros To Trading The Pullback:
As you're approaching a high-value price action, the risk-to-reward ratio becomes better in this situation (previous Resistance now serves as Support).
Cons To Trading The Pullback:
It's possible that the pullback will never arrive, and you'll lose the opportunity to make a price action move on your trade.
Discover Today How To Time Your Entries, Stops, and Exits When Trading The Trend Reversal.
Profitable Trend Reversal Trading requires smart price entries, stop losses, and exits in order to make a profit.
So, here's the million-dollar question...
How do you determine the best timing to enter a Trend Reversal trade?
There are 2 possible approaches...
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A Limit Order
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A Reversal Candlestick Patterns
1. A Limit Order -
You can place a limit order and enter a trad order without having to get for "confirmation."
The good news is that you have a positive risk-reward ratio on your trades because your entries are near the highs and lows of the market.
However, the disadvantage here conversely is that it is psychologically harder to purchase while the market is falling (and you need the experience to know which levels are worth trading).
Fear and Greed become very real and very powerful forces in this situation.
2. Candlestick Reversal Patterns
Alternatively, you might time your entry by using reverse candlestick patterns
Like Bullish Engulfing & Hammer, etc.
Because of this, you will only enter a trade when the market displays symptoms of reversal.
You do, however, run the danger of joining at a significantly higher price. At the support levels you'll find bullish reversal candlestick patterns after they have formed:
Now, let's go on...
What Is The Right Way To Establish A Stop Loss in Trend Reversal Trading?
When it comes to stop-losses, you want to put them at a level that will cause your trading setup to be no more good.
This means that if your stop-loss is hit, the pattern has been "broken," and there is no longer any reason to remain in the trade.
Let's say you've taken a cash position in a trade when it showed a Breakout from Resistance.
Clearly, if the breakout is valid, the price should not return to the range; otherwise, the breakout is considered a failure. As a result, you can place your stop loss below Level 1 Resistance, where the price is unlikely to return.
If this occurs, you will know that your trading setup is no more good and that it is time to exit the trade.
Next, let's cover selling...
How to Exit Profitable Transactions
Your exit strategies are and should be determined by your cash objectives before you take a trade.
What do you hope to achieve when you take a price in a stock — to catch a swing or to ride a trend — this is important.
Swing Trade Objective
If you want to take advantage of a swing trade, you should exit your trades before the opposing pressure takes hold of the market.
If you're long, you'll want to get out of your trade before you hit any Resistance or the swing high point.
Trend Objective
For those who prefer to ride a trend, you can trail your stop loss as the market moves in your favor.
For example, you can use the 20MA to Trail Your Stop Loss Order throughout the trend.
In Closing
Thanks for staying with me until the end of this training. Give yourself a hand because this means you're ready to make some serious profits as an investor.
Read and re-read this article until you fully comprehend everything and once you're ready come join my penny stock trading newsletter Golden Penny Stock Millionaires...
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My Guide Summary
You've learned the following things from this Trend Reversal Trading method Guide:
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You should never try to catch a falling knife or trade the initial pullback of a downward trend.
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Understand the four stages of the market so that you can predict when the price is likely to reverse its direction.
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Trading setups for trend reversal include: support and resistance, the breakout, and the pullback.
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When entering a trade, you might use a limit order or wait for a candlestick pattern to reverse before entering.
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It is best to place your stop loss at a level where, if it is hit, your trading setup is deemed invalid and you are forced to exit the trade.
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There are two ways to exit your profitable trades: by capturing a swing or by riding the trend, respectively.
