Monday, September 12, 2011

Major reversal: Bear Trendline break and HL

Usually a major reversal of a bear trend requires a strong break of the trendline and a LL test. But sometimes, there will no LL test and you would need to enter on a HL. These cases will run in a very hard trend for only one leg so you need to be able to identify these and enter on the HL.

The precondition to a strong reversal late in the day is a very strong move in the first hour (b1-b8). Without a prior show of strength, any reversal without a LL test is likely to fail.

The most important characteristic of a such a HL major reversal is that the trendline break will take out multiple swing points  (b57-63 took out 3 swing highs). The second important characteristic is that the trendline break move goes well beyond the ema and closes many points above in a one legged move. A multi-legged failed breakout giving a possible W (b19,50,57) of the range is more likely to fail than a one or 2 legged strong break of the TR.

After b63, traders should buy a pullback to the ema and possibly any reasonable pullback. A 2 legged pullback (b69 ended the first leg) is very desirable and will usually give a hard trend. This essentially works as an A2 or fL2 (b68 was L1), which can be traded as a swing entry after a reversal.


  1. Cad--
    My trading has improved a lot since I found out about your blog in the Brooks chat room a month ago. thanks.
    Question: Brooks and yourself mention traders who take every reversal during the first hour. any ideas on how to do this well? I'm looking at bar intervals to see which give better tells (2.5 m, 5 m, 3k volume, 2 Pt range bars. so far I seem to get the best picture by watching two charts: range bars and 2.5 m bars.

  2. Dont take every reversal, take only well formed reversals after a strong move.

  3. It looks good, but b67-70 looks like Barbwire. Or i miss something?

    1. In the context of a sharp move, a pullback can often look like BW.