Reversals are where traders make the most profits, but spotting them requires precision and patience. This cheat sheet will teach you practical and actionable steps to spot reversals using price action. No fluff — just real, proven methods that will help you avoid fakes and catch the perfect entry. 💯
How to identify market reversals: key steps 🔑
1️⃣ Look for strong momentum changes
Bearish Momentum: Long red candles indicate strong selling pressure.
Dying bearish pressure: Smaller red candles with wicks indicate that sellers are losing control.
💡 Tip: The market doesn't suddenly bounce back — it shows signs of exhaustion. Wait for confirmation!
2️⃣ Identify Wick deviation at support or resistance
Wicket rejection: The price tries to break below support but is pushed back, forming long lower wicks.
Indicates that buyers are stepping in to defend the zone.
💡 Example: A double or triple wick rejection is a high probability reversal signal.
3️⃣ Spot bullish engulfing candlesticks
The engulfing bullish candle completely covers the previous red candle.
This indicates a shift in power from sellers to buyers.
🚨 Pro tip: Combine this with volume spikes for further confirmation that buyers are serious.
4️⃣ Understand the pushback against correction
Momentum: Long green candles with little resistance show strong upward momentum.
Correction: Shorter candles show that the pullback is weak and temporary.
📝 Strategy: Use pullbacks after impulsive moves for low-risk, high-reward entries.
5️⃣ Confirm strong bullish momentum
A series of higher highs and higher lows following a reversal signal confirms an uptrend.
Look for clean breakouts above resistance to avoid premature entries.
💡 Checklist:
Break in a structure (e.g. trend or resistance lines).
Momentum confirmation (long green candles).
Entry near retest of breakout zone.
Bonus tips for improving your reversal strategy 🚀
Always wait for confirmation
No rejection = no trade. Period.
Avoid the chase; let the market come to you.
Place your stop loss strategically
Below the wick is the rejection or absorption of the candle.
Keep your risk/reward ratio at least 1:2 or better.
Combine with RSI or MACD
Use RSI to detect oversold or divergence conditions.
Use MACD crossovers for additional momentum signals.
Watch out for false breakouts
Avoid entry if volume does not support a breakout.
Use smaller time frames to check price action near key levels.
Key takeaways 💡
✅ Reversals don't happen by accident - watch for signs of exhaustion and changes in momentum.
✅ Be patient and disciplined; enter only after solid confirmation.
✅ Practice risk management and use tight stop losses.
💬 What's your favorite reversal signal? Drop it below and let's discuss!
🔔 Save this post for your trading strategy and share it with your trading team! 🚀
