🔍 Price reversal:
It is an advanced skill that enables traders to seize market shifts before anyone else. In this post, we will review the most important strategies and practical steps to accurately identify reversal points, starting from defining the concept to risk management.
1. 📐 Definition of price reversal
>> What is a reversal?
Change in price direction from up to down or vice versa.
>> Why do we care about it?
Reveals early entry opportunities and increases potential returns with lower risk.
2. 🔑 Conditions to confirm the reversal
Structure of peaks and troughs
Breaking the previous peak/trough level.
Trading volume
A noticeable increase in volume supports the new movement.
Engulfing Candles
A strong candle engulfs one or more previous candles in the same direction.
Indicator Divergence
RSI or MACD indicates a reversal opposite to the price movement.
3. 🛠️ Practical strategies
Double moving averages strategy
Enter a buy when the short-term EMA crosses above the long-term EMA, and sell vice versa.
Bollinger Bands and retracement strategy
Wait for the price to touch the upper band and then return towards the middle as a sign of a bearish reversal.
Dynamic support and resistance strategy
Use Fibonacci levels 38.2%–61.8% to identify potential reversal points.
4. 📊 Auxiliary indicator tools
RSI (Relative Strength Index)
Values 30–70; if you enter the overbought/oversold zone (below 30 or above 70), expect a reversal soon.
MACD (Moving Average Convergence Divergence)
The crossover of the signal line with the MACD line usually precedes the reversal.
ATR (Average True Range)
Helps to set stop loss levels far enough to avoid random fluctuations.
5. ⚖️ Risk management
Risk to reward ratio (R:R)
Aim for at least 1:2 for effectiveness.
Trade size
Do not risk more than 1–2% of your capital in a single trade.
Dynamic stop loss
Move the stop loss with the price to secure profits when the reversal occurs.
🧠 Trader's tip
– Test your strategy on a demo account first, then cautiously move to a real account.
– Stick to the plan and don't let emotions affect your decisions.
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