Reversals can lead to significant gains, but identifying them requires precision and patience. This guide provides actionable steps to spot market reversals using price action—no fluff, just proven techniques to help you avoid fakeouts and secure ideal entries.

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How to Identify Market Reversals

1. Watch for Momentum Shifts

Bearish Momentum: Long red candles indicate heavy selling pressure.

Fading Pressure: Smaller red candles with wicks suggest sellers are losing control.

Key Insight: Reversals don’t happen instantly—look for signs of exhaustion and wait for confirmation.

2. Recognize Wick Rejections at Key Levels

What to Watch: Price attempts to break below support but rebounds, forming long lower wicks.

What It Means: Buyers are stepping in to defend the level.

High Probability: Double or triple wick rejections are strong reversal signals.

3. Spot Bullish Engulfing Candlesticks

Definition: A green candle completely engulfs the previous red candle.

Significance: Indicates a power shift from sellers to buyers.

Pro Tip: Combine with volume spikes for stronger confirmation.

4. Distinguish Impulsion vs. Correction

Impulsion: Long green candles with little resistance = strong upward momentum.

Correction: Shorter candles indicate weak, temporary pullbacks.

Strategy: Enter during pullbacks in impulsive moves for low-risk, high-reward setups.

5. Confirm Bullish Momentum

Pattern: Higher highs and higher lows after a reversal signal confirm an uptrend.

Breakouts: A clean breakout above resistance reduces the risk of false entries.

Checklist:

Break of structure (trendline or resistance).

Momentum confirmation (long green candles).

Entry near the retest of breakout zones.

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Bonus Tips for Perfect Reversals

Wait for Confirmation: No rejection = no trade. Be disciplined.

Stop-Loss Placement: Below wick rejections or engulfing candles. Maintain a risk/reward ratio of at least 1:2.

Use Indicators Wisely:

RSI: Identify oversold conditions or divergences.

MACD: Look for crossovers to confirm momentum.

Avoid False Breakouts: Ensure breakouts are backed by strong volume. Use smaller timeframes to validate price action.

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Key Takeaways

Reversals are signaled by exhaustion and momentum shifts, not random moves.

Discipline is key—only enter trades with clear confirmations.

Protect your capital with strategic stop-losses and risk management.

What’s your go-to reversal

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