How To Know If A Trend Is Ending? - Take Advantage of Reversals
Hi Traders. Today I'm going to discuss about a highly requested topic, how could you stay informed and identify an ending trend/ reversal beforehand? It all begin with do you know how to identify a trend in the first place? It may sound simple, higher highs & higher lows sequence. Referring to the illustration above, believe or not, majority of new traders actually short into these simple continuation pattern thinking that the market is going to reverse anytime based on their FOMO, overthinking behaviour, misuse of candlestick pattern, and lack of knowledge. If you are new to trading, I'd recommend you to avoid mean reversion or reversal setups as most likely you are going to catch falling knives. It's relatively easier for new traders to trade with the trend as reversal trading is something require more experience, understanding of the market, and back-tested strategies. Do get me right, reversal is a highly profitable trading style that I am doing most of the time, but catching the tops & bottoms could be devastating if you're not doing it the right way. I'll pinpoint some common characteristics of exhaustion vs reversal below,
Exhaustion/ Continuation pattern
- Short in duration
- Tight range
- Weak pullback compared to the impulse
- Respecting static & dynamic support (Eg. EMAs, trendline, S&R, Fibonacci, etc.)
- Showing signs of a healthy trend
Reversal pattern
- Longer duration (Distribution phase)
- Wide range
- Strong pullback digesting the impulse (Shock the market)
- Disrespecting key levels & dynamic support
- No sign of a healthy trend
One thing to remind yourself, is to avoid finding reversal on the lower timeframe 1m - 15m charts, as there are time where you'd get trapped onto some seemingly healthy pullback on the higher timeframe, but you're treating it like a reversal which the Risk-to-reward ain't going to be great. Constantly practice and train your brain into spotting reversals is the best way to become a better countertrend trader. Keep your chart simple, understand support & resistance first before you jump into any other indicators or complicated strategies. Eg. on an uptrend, simply look for higher highs & lows until the market is not doing so, then you'll be cautious on possible momentum shift.
Knowledge, discipline, mindset.
"The goal of a successful trader is to make the best trades, money is secondary" - Alexander Elder
Trade safe.
Do follow my profile for daily fx forecast & educational content.
Exhaustion/ Continuation pattern
- Short in duration
- Tight range
- Weak pullback compared to the impulse
- Respecting static & dynamic support (Eg. EMAs, trendline, S&R, Fibonacci, etc.)
- Showing signs of a healthy trend
Reversal pattern
- Longer duration (Distribution phase)
- Wide range
- Strong pullback digesting the impulse (Shock the market)
- Disrespecting key levels & dynamic support
- No sign of a healthy trend
One thing to remind yourself, is to avoid finding reversal on the lower timeframe 1m - 15m charts, as there are time where you'd get trapped onto some seemingly healthy pullback on the higher timeframe, but you're treating it like a reversal which the Risk-to-reward ain't going to be great. Constantly practice and train your brain into spotting reversals is the best way to become a better countertrend trader. Keep your chart simple, understand support & resistance first before you jump into any other indicators or complicated strategies. Eg. on an uptrend, simply look for higher highs & lows until the market is not doing so, then you'll be cautious on possible momentum shift.
Knowledge, discipline, mindset.
"The goal of a successful trader is to make the best trades, money is secondary" - Alexander Elder
Trade safe.
Do follow my profile for daily fx forecast & educational content.