Price Action is a form of Technical analysis that uses market data such as Price and Volume to anticipate market prices. In this week's blog I want to talk about some of the ways I use price action knowledge to look for upcoming reversal (Bullish & Bearish both) in price. These are good calculated strategies that provide entries with defined risk. One can use these in trending market, range-bound and even as a counter-trend trade.
How to spot a reversal signal in a Trending market
Many traders think of reversal as a strategy that the market has been exhausted and it will now reverse its course. Where as most of successful traders have repeatedly mentioned that you have to assume that the trend in higher time frame will remain in tact and look for pull backs to find such price action based reversal trades to get back into the market and join the dominant trend.
In the chart above you can see that the price was in an uptrend and then it retraced back to Support area to form multiple hammer or pin bars. That was a nice opportunity to establish a long position to re-enter the uptrend. Usually in such chart based setups, the stop-loss goes below the support level or pin bars. Always try to go for profit target that is 1.5 to 2 times your risk amount (Stop-loss). That way even if your trades are wrong 50% of the time, you will still be net profitable.
This is not the only strategy out there for trading reversals during retracement, but you get the idea of what kind of price action to expect at key Support and Resistance levels. There are other combinations of hammer bars combined with inside bars, Trend bar failures, Weak pullbacks, and Buying pressure (all of them shared with members on the mommytrading website).
Few Points to remember as you consider trades based on Price Action
These kind of setups can be traded in various market conditions such as trending, counter trend, or within a certain trading range.
Look for such price charactersticks in higher time frames such as hourly, 4 hourly and/or daily for reliable signals.
High quality reversals occur at Price levels that are identified as Resistance or Support areas. That is why creating Price levels is an important art (rather than a science). I have come up with Price Action course based on all my knowledge of Setups and Price patterns. You can read more about it here.
Now to review Last week recap:
$CODX was a SUPER Winner.
$TEAM did AWESOME.
$ROKU not so well, but still holding calls for next week expiration.
For the upcoming week's technical analysis on $AMZN, $AAPL, $MSFT, $NFLX, $SPY /MNQ - Please click here to see the video clip.
All the best,
Ainee & UC