Easy Method to Spot and Trade ReversalHey whats up trader, in the last post we determined Daily Bias in the Trending conditions.
Now let's have a look to the reversal conditions.
We will look at the Daily bias, but as I mentioned this many times in my posts - price is fractal so you can use this at any timeframe. But, If I can give you recommendations look for Higher timeframe bias on Daily and Weekly and H4 / H1 Structure and M15 entries.
⁉️ Where is the liquidity ? Always follow the Daily / Weekly candle close.
Before I will show you my reversal pattern lets look first at how price stays in a trend.
📈 Continuation
If todays daily candle closed above previous days high and its still not reaching the key level, then liquidity is above todays high. Why ? Because people have intentions to sell highs to early, so and price will most likely go there. So we are bullish. Bullish Close 📈 Reversal
If todays candle wicked above previous day high, but closed below , then we can expect liquidity is below Previous days low. Why? Because mostl likely traders entered fake high break out they put SL below days low. It's signs of reversal. Every significant reversal wicked above / below Previous days high/ low and closed inside, if not seen on PDH then its on weekly. 🧩 Liquidity theory
Its always good to thing about the markets in terms of what others are doing. Back in 2014 when I worked in broker I had a chance to watch the order book. I have been able to see how traders are entering the markets where they put they stop losses. In the fact many people are chasing the price and they always buy highs and sell lows and most of the time they hide stop losses bellow / above the lows / highs of broken candle.
So if that is true, it can look like on the picture below. We can see price moving up. Focus on candles with the wick. It's what we see now. But at specific moment that candle was looking bullish and most likely traders entered with hope for the continuation. And they have put stop loss below the previous days lows. as that candle closed with the wick below the previous days high traders are now trapped in the longs and stop run against them starts now. It's our opportunity its our range - Our new bias.
Same it will be for the bullish case, traders sell the break out of the lows and put their stop loss above previous days highs. This behaviors creates a stop loss cluster there - which is liquidity and its high chance market will go there soon. Its our opportunity - our new bias So based on the candle closes we are able to defined a candle which was manipulated and its your range. I always markup range high / low and its 50% because its always a first target or partial profit when trading these ranges.
I have explained more about Range trading in this post 🔗Click the picture to learn more 👇https://www.tradingview.com/chart/BTCUSDT.P/PkQJvVm4-Complete-system-for-Day-Swing-Traders/ if you have read the linked post above you must understand that candle close are just a pattern.
‼️ We don't want to be just pattern traders, we need to understand the market context to filter out only high probability setups. Every setup must have following
1️⃣Key Level
our pattern without a key level is nothing. You dont want to be pattern trader, we need to add market context so every trade must go from a key level. Key levels occurs above / Below the ranges 2️⃣ Liquidity
Every range or range manipulation has to go above old highs / lows. Its increase the probability that traders entered break out so we can trade against them 3️⃣ Range definition
Skip small ranges. Not only that they will not give you proper risk to reward ratio, but they didnt created fomo or panic. We want see violent big range candles. Again go thru the charts you will see that big volatility always occurs before the reversal. 4️⃣Multiple timeframe ranges
for higher probability and biggest risk to reward setups mix HTF range with LTF ranges as for example on the chart below we can see Monthly, Weekly ranges, and even Daily range on the lows. There was H1 entry on the daily. And we closed above previous day = Daily order block on the edge of the Monthly and Weekly range = It will most likely go higher
✍️ Homework
its not point to show you how many times these ranges works or not. You can look to my profile and you will see many successful trades and also unsuccessful ones. Yes there is also losses. We are humans and we make mistakes. So forget about holy grail, but if you want to learn something there is no better way to learn than on live examples.
Here are charts with current ranges im seeing. With my Bias for the next week.
Go to your charts, find them and observe how the price action will develop. Might you find something to your trading arsenal.
🧪 DOLLAR- Monthly CLS range I Weekly CLS Range 🧪 GBPUSD - Monthly CLS range & Weekly CLS range 🧪 EURUSD - Monthly CLS range & Weekly CLS range 🧪 USDCHF - Monthly CLS range & Weekly CLS range Adapt useful, rejects useless ...
Thanks for readying. Have a great trading week.
David Perk aka Dave FX Hunter
