The Elusive Reversal - Reversal Strategy Discussion

[Abiel 475]

In yesterday recap (8/8/2018) Andrew stated that "when a stock is struggling for about 45 mins to go down it has to go up" ($MTCH)

The same was true in the case of $MYL

And in $LITE

Also, there were important levels in all these examples (Y low MTCH & LITE), MAs in MYL)

[Abiel 475]

Today Andrew called PTLA VWAP reversal @ 10:52 AM / $30.95, with a long consolidation around 9 & 20 MAs to climb to VWAP and then sell off again...

 

 

[Abiel 475]

Today reversal of $PTLA

 

 

 

 

[Abiel 475]

Today top reversal on $SQ

 

 

 

 

[Abiel 475]

Today top reversal on $ESRX

 

 

 

[James H. 14]

I've studied reversals. The best indicators, I found, is counting the number of moving averages the candles crosses. I define a crossing when a candle opens and closes entirely on the other side of the moving average after it crossed. 

To add, if a moving average price is relatively a horizontal line, the probability of this reversal signal increases. Another thing, if the price crosses a large moving average, the chances of the price not returning to it for the near term increases.

For example, once a stock price crosses a trending 200ma, this stock price will probably not cross the 200ma again in the near term. If the 200ma is trending upwards, the price of the stock will stay mostly above the it throughout the day. If the 200ma is trending downwards, the price of the stock will stay mostly below the 200ma throughout the day. However, If the 200ma is a relatively a horizontal lines during the crossing, there is a high probability of a reversals occurring soon.

If you combine these two signals with price patterns, you can anticipate an early entry before the reversal occurs. For example, ESRX's 11:19 candle opened and closed after it crossed the 9 ema. Then the 11:20 candle also opened and closed after crossing the 20 ema. During the crossing, the 9 ema and 20 ema  were almost horizontal. Before the price crossed the moving average, the engulfing price pattern occurred first at 10:15.

This is where trading price patterns works best, but also remember to keep track of the trend.

Final words, Like every trading signal, they are not prefect. The signals I've described above may increase your chances of detecting reversals, or at least a pull back.

[WilliamH 67]

On 8/11/2018 at 10:58 PM, jamesharris said:

I've studied reversals. The best indicators, I found, is counting the number of moving averages the candles crosses. I define a crossing when a candle opens and closes entirely on the other side of the moving average after it crossed. 

To add, if a moving average price is relatively a horizontal line, the probability of this reversal signal increases. Another thing, if the price crosses a large moving average, the chances of the price not returning to it for the near term increases.

For example, once a stock price crosses a trending 200ma, this stock price will probably not cross the 200ma again in the near term. If the 200ma is trending upwards, the price of the stock will stay mostly above the it throughout the day. If the 200ma is trending downwards, the price of the stock will stay mostly below the 200ma throughout the day. However, If the 200ma is a relatively a horizontal lines during the crossing, there is a high probability of a reversals occurring soon.

If you combine these two signals with price patterns, you can anticipate an early entry before the reversal occurs. For example, ESRX's 11:19 candle opened and closed after it crossed the 9 ema. Then the 11:20 candle also opened and closed after crossing the 20 ema. During the crossing, the 9 ema and 20 ema  were almost horizontal. Before the price crossed the moving average, the engulfing price pattern occurred first at 10:15.

This is where trading price patterns works best, but also remember to keep track of the trend.

Final words, Like every trading signal, they are not prefect. The signals I've described above may increase your chances of detecting reversals, or at least a pull back.

Great information James. Thanks for posting. A few follow up questions.

1. When you say you "define a crossing when a candle opens and closes entirely on the other side of the moving average after it crossed"  . . . Is it just the body of the candle that must be on the other side of the moving average, or do the wicks also have to be entirely on the other side?

2. In your studying of candlesticks crossing MA's for reversals, have you come across significance of Moving averages crossing each other either for confirmation of a reversal, or for occuruing in conjuction with the candlesticks Crossing the MA's, such as what happened on the ESRX 1 minute candle around 11:22 or so.

3. Lastly, it might be somewhat obvious, but I would love to hear your interpretation. Why is it so significant when this reversal happens with everything you noted? Is it something with algo's? people covering? momentum? what are your thoughts for us to understand the meaning behind the action?

[James H. 14]

No one knows what will happen to the price of a stock in the future, but you can anticipate it before it happens. 

This is not an indicator I use for entering a reversal trade. Why is this? Timing is the key and trading reversals is an art, I haven't mastered.

The body of the candle contains the open and close prices. I don't include the wicks. I've tried entering immediately after the candle closes on the other side, and also immediately after the candle opens on the other side. After studying my failed reversal trade attempts, I had more successful reversals occur after the candle opened and closed entirely on the other side of the moving average.

The only problem with this signal is that waiting for that candle to close. Because, if entering on the close, your risk may increase and your reward may decrease . This is where strategies 1-3 in Andrew's book comes in handle. Andrew ordered the strategies ABCD Pattern, Bull Flag Momentum, and Reversal Trading. I've practiced these longer than any other strategy.

At the open, I personally look for flags because I can spot these easily. If that flag fails, I have no problem waiting for a pull back for a possible add on an ABCD. But, once the candles start crossing over moving averages, I start bailing out, take some profits or take the loss. I really don't like trading reversals unless I'm trying to get back some gains from being stopped out.

I also studied crossing of moving averages lines but this price pattern appears to be random when trying to trade it in realtime. When studying charts, it looks like the perfect setup, but trying to trade it in realtime is tough. The candles will cross before the moving averages will intersect each other. You could use 9ema and 20ma lines intersecting as an addition indicator. To verify that the previous candles are starting to trend in the other direction of the moving average.

The problem is that moving averages are lagging indicators, so by the time the moving average crossed, the price has already moved. So you will need to anticipate when the lines will intersect each other.

If the price continues to retest the 9ma, eventually it's going to crack through to retest the 20ma, and then retest the 200ma. From my observation, when the 200ma is horizontal, reversals occurs more often because this moving average will be retested more frequently. If it doesn't get retested, the price is probably trending. Like I said above, if the price is above the 200 ma, it's probably safer to be long bias. Also, if the price is below the 200 ma, it's probably safer to be short bias.

Again, these were observations I've made from watching videos of my failed and winning trades.To answer your question of my interpretation of what's happening, I completely have no idea, but I think it has something to do with the entropy of transactions. In actuality, every reversal is different, I'm still learning myself.

All this information is great to know but remember. At anytime, a market maker could easily send prices to the moon or to hell in ways you and I will never understand.

Edited August 14, 2018 by jamesharris

[Abiel 475]

Yesterday Andrew sent and email, "The infamous "Brian Double Top/Bottom"

 

See Brian's recap for August 17th here: https://youtu.be/X5Zdg-JFaqg

See Andrew´s  recap for August 17th here https://youtu.be/q-u6v_MmAbk?t=115

 

[Abiel 475]

Now we have a youtube playlist with @Robert H reversal videos

 

[Skye 28]

I find it helpful to wait for the candle to cross the ma, then pull back and bounce off the ma successfully before getting in. With this I lose on reversals only most of the time instead of all of the time - LOL.