Reversing a position in Futures trading is the action of closing the current position and immediately opening the opposite position, for example from Long to Short or vice versa, with the same volume or a different volume.
1. When should position reversal be used?
● Clear reversal market:
When there are strong technical signals or news confirming that the current price trend has ended and is preparing to go in the opposite direction.
● Combined with stop-loss (SL):
Instead of just closing losing positions, traders open new positions in the opposite direction to take advantage of a strong break in the new trend.
● Short-term trading (scalping or day trading):
The market is highly volatile, and continuous direction change is necessary to maximize profits in a short time.
2. Advantages of position reversal
• Maximizes profit if the reversal trend is caught correctly.
• Immediately take advantage of new trading opportunities without waiting.
• Flexibility in trading strategies, especially in a highly volatile environment.
• Saves operational time compared to manually closing/opening each order.
3. Disadvantages to note
• Increases risk if the reversal signal is not strong enough → may result in losses on both orders.
• Higher trading costs due to having to pay fees for both orders (maker/taker fees).
• Psychological tendency to panic, especially when reversing continuously leads to faster 'account burn'.
• Requires quick reaction, good analytical skills, and ability to control emotions.
4. Important principles when using position reversal
✔️ Only reverse positions when there is a definite signal
• Combine multiple technical indicators such as: MACD crossover, RSI divergence, volume breakout, engulfing candles,…
• Don't reverse positions based on emotions or when the trend is unclear.
✔️ Clearly identify reversal areas
• Should not reverse positions in a narrow sideways range, easily 'swept' in both directions.
✔️ Tight capital management
• Limit reversing positions with excessively large volumes (double or triple the previous order).
• Use stop-loss and take-profit for new orders to limit risk.
✔️ No abuse
• Reversing positions multiple times in a short period can lead to loss of control and continuous 'trend following'.
5. Practical illustration
Assuming you are Long BTC at $64,000, then BTC drops sharply and breaks the support at $63,800 with high volume → confirms a downtrend. Instead of waiting to hit SL at $63,600, you switch to Short immediately at $63,780 to take advantage of the downward momentum → if correct, you recover the loss and can make a profit quickly.