Trading and reading good commission analysis is where traders make the biggest gains, but spotting them requires precision and patience. This cheat sheet will teach you practical, actionable steps to identify reversals using price action. There’s no fluff – just real, proven techniques to help you avoid fakeouts and catch the perfect entry. 💯
How to Identify Market Reversals: The Basic Steps 🔑
1️⃣ Look for strong momentum changes.
Bearish Momentum: Long red candles indicate strong selling pressure.
Dying Bearish Pressure: Small red candles with wicks indicate that sellers are losing control.
💡 Tip: The market does not suddenly reverse, but shows signs of exhaustion. Wait for confirmation!
2️⃣ Identify the wick rejection at support or resistance.
Wick Rejection: The price attempts to break below the support level but is pushed back up, forming long lower wicks.
Indicates that buyers are stepping in to defend the area.
💡 Example: A double or triple wick rejection is a high probability reversal signal.
3️⃣ Instant Bullish Engulfing Candles
The bullish engulfing candlestick completely covers the previous red candle.
This shows a shift in power from sellers to buyers.
🚨 Pro Tip: Combine this with volume spikes to further emphasize seriousness of buyers.
4️⃣ Understanding Impulse vs. Correction
Impulse: Long green candles with little resistance show strong bullish 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 Confirmation of strong upward momentum
A series of higher highs and higher lows after a reversal signal confirms the uptrend.
Look for clean breakouts above resistance to avoid premature entries.
💡 Checklist:
Breaking a structure (eg, trend line or resistance).
Momentum confirmation (long green candles).
Entry near the retest of the breakout area.
Additional tips to master your reversal strategy 🚀
Always wait for confirmation.
No rejection = no trade. Period.
Avoid the chase; let the market come to you.
Place StopLoss strategically.
Under the wick or candle flame.
Keep your risk/reward ratio at least 1:2 or better.
Combine with RSI or MACD
Use the RSI to spot oversold conditions or divergences.
Use MACD crossovers for additional momentum signals.
Watch for false breaks
Avoid entering if volume does not support a breakout.
Use the smallest time frames to check price action near key levels.
Main fast food 💡
✅ Reversals don't happen randomly - watch for signs of fatigue and momentum changes.
✅ Be patient and disciplined; only enter when there are strong affirmations.
✅ Practice risk management and use tight stop loss points.
💬 What's your favorite reversal signal? Drop it below and let's discuss!
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