Tuesday, November 15, 2011

Reversal bars

Reversal bars often signal reversals, regardless of where they are. A well placed reversal bar (b6) can signal the end of a move (b1-b6) but so can an incorrectly placed reversal bar such as b15 signaling the end of the prior move (b10-b15).

A reversal bar followed by a reversal bar in the opposite direction (b15,16 and b32,33) is usually a very strong signal, especially if the second reversal bar can be viewed as a 1PB in a new trend move, i.e. its the first pullback after a possible reversal.

Similarly, reversal bar failures are very strong with-trend signals. Often after a recent possible reversal, the failure of a reversal bar can often be used as an entry. You could enter long on a stop above b32 (for example if you did not already get a buy signal at b33)

A reversal bar of the wrong color such as b39 are usually traps and if the trend has been strong, may be traded as a continuation signal.

Small reversal bars (compared to prior bar or recent bars) are subject to failure such as b68 and you should only take second entries. The only exception is when the tail is at least as long as the body and you have additional signs of strength in the direction of the signal.


  1. Cadaver I know I ask a lot of questions. I don't expect you to always answer me but thanks again for when you do. I entered above B33 and put my stop for -1.5 instead of below the bar. As per your advice I am trying to keep tighter stops. Sure enough I got stopped out. I guess I just wanted to comment and say I have a difficult time using stops as tight as you recommend.

  2. Dan, -1.5 is for deep pullbacks to a support such as ema or trendline. If the pullback is shallow or not to a support, you should use the BPA stop of the signal bar and then move it once entry bar closes.

  3. Cadaver could you please explain how you take profits. Once you target of +2 has been reached do you move you stop to break even and then what do you do when +4 is reached? Also what is your advice for traders who can't afford 3 contracts, what is the best way to exit trades for maximum ticks?

  4. Omar, yes I move stop to breakeven. You can also move stop beyond entry bar. When +4 is filled, you can move your stop to +1 and trail it up.

    In general, I prefer to focus on maximum accuracy than maximum ticks. That is more likely to make me higher profits and allow me to scale up in size.

  5. Also check this video on how I manage stops


  6. Sorry to ask so many questions but what is your advice to traders that can't afford three contracts and trade the single one? Do you know what the best target is then?

  7. Omar, if you can only trade 1 contract, your best bet is to take +2. If you are very confident of any entry, you may try to take an additional point. However, since many traders sell at +2, you may see significant pullback after +2 before you hit +3.

    So until you are consistent, my advice is to trade one contract and exit at +2.