Hey hey: what's up my friends, so in today's episode it's all about reversal trading, okay! So, first and foremost what is reversal trading so as a reversal trader, you are in essence a counter trend, trader someone who's trading against a trend trading against current momentum. So, for example, let's say the market is in an uptrend making a series of higher highs, higher lows in this uptrend. So, as a reversal trader, what you are doing is to sell into that up trend or, for example, if the market is in the downtrend, then as a reversal trader, you're looking to buy into their downtrend okay. So the first thing i want to share with you is how not to be a reversal trader.

So the first thing to bear in mind is that yes, as a reversal trader you're trading against a trend trading against the momentum, but it doesn't mean that you should try to catch a falling knife. So let's say if the market is dropping day after day, like a rock, you don't want to just blindly enter a trade to click buy. Just because i'm a reversal trader, i buy low and sell high. That's foolish right because, if you are buying into the lows there is no logical place for you to set your stop-loss.

There is no there's no signal to that to that downtrend, which there's no signs right, that that downtrend could be ending soon. So, as a reversal trader, you want to be smart about it and there are a few things. I want you to pay attention to so number one. Is this reference point? Yes, you are a reversal trader, but you must have reference point on your charts.

What is reference point so, let's say again: market is, let's say in an uptrend right, breaking up to new highs every single day you know breaking out higher and then one fine day there is a strong sell-off. A strong pullback in the market then boom the market. Don't just had a sharp sell-off or over the next two three days. So, if you imagine, this right market is in an uptrend, followed by a strong pullback, a strong sell-off.

If you look left of the chart, you will now have that swing. High. That swing high is a reference point on your chart. Okay, so that's the first thing you need as a reversal trader.

You want to identify a reference point on your chart. I'll explain why shortly second thing is this: once you have identified the reference point, then what you want is for the market to re-test that reference point. So let's say now: the market has, after the sell-off it started to climb its way back up higher in the uptrend. So it's it.

You know, hit higher up over the next few days and then you re-test the reference point. The next thing that you're looking for is for the price to re-test that reference point and to get strongly rejected, so you re-test the reference point and then it couldn't break out higher, but what it does is it reverse and close lower for the day. So what this tells you is that the buyers tried to break up of the reference point of the swing high, but it failed to do so. There is no follow through.

There is no more momentum, no more buying pressure, pushing the price up higher. What happened next is that you know short sellers came to the market, uh buyers took profits and the market quickly reversed back and closed lower for the day. So this is what i call in essence, a false breakout. The price tried to break out higher and fail.

That's why it's called a false breakout, so once you've identified a false breakout, that's the second thing to look for a false breakout at the reference point. The third thing is this: once you have that false breakout, you can now set a proper stop-loss compared to earlier, where you don't have a reference point. You don't have a false breakout, there's no logical level on your chart to set your stop-loss, but now that you have your reference point now that you have a false breakout, you can simply set your stop-loss above the highs of the false breakout candle. You know maybe 180 above it, so let's say the false breakout.

The heist is at hundred dollars. You can set your stop loss at 105, give it some buffer give and take right if you want to define objectively how much buffer to use use the atr indicator for the indicator. It's called. It stands for average.

True range measures, volatility of the market and they just add that volatility right to the high of the candle okay. So next thing, once you have your stop-loss in place, which is above the highs of the reference point above the highs of the false breakout. The next thing is that if the market moves in your favor, what now, where do you take profit, so remember as a reversal trader you're, not trying to write the entire new trend in the opposite direction, because more most often right? What happens? Is that you get a pullback and then the trend continues and it continues to hit higher. So as a reversal trader, you want to be smart about it, you don't want to be greedy, so my suggestion is to be conservative right with your take profit level.

So, where you want to take profit is possibly at the nearest swing low. This is a area on your chart where potential buying pressure could come in and push the price higher. So if you are selling at the reference high, you got a good entry, don't be greedy with your take profit level right, be conservative. You can target at the nearest swing low and just capture one swing in the trade and that's it and that's really the the goal of a reversal trader just to just capture that one swing in the market right and just let it be.

Of course, there are some of you who wants to be more aggressive in the sense that you want to try to write a new, the new trend right when the market reverse - and maybe you could be right so again be smart about it. Don't use your full position and try to write the trend. What you want to do is that, instead of maybe using a full position and pray that you know you catch the reversal, what you can do is to take 50 off your position off the table. So maybe 50 at the nearest swing low, take some profits off the table and if the remaining 50 of your position on right to see whether the market does reverse completely and move into your intended direction.

So, even if it doesn't right at least you book some profits and you could still end up with a small winner on the trade overall, so be smart about it. Don't try to. You know, think that you know you are going to catch the reversal right. It's the end of the trend, because trust me more often than not it's a pullback and then the trend continues higher, so be smart when it comes to taking profit.

So, let's do a quick recap to what we have just this discussed today: number one as a reversal trader: don't try to catch a falling knife, don't try to sell into parabolic move instead, what you want to look for is number number one. A reference point on the chart. Number two look for a false breakout at the reference point number three: you can set your stop loss right just above or below that reference point and number four be conservative with your targets right, because the trend right more often than not will just continue in its Intended direction so don't be too greedy. Trying to you know to write the entire new trend.

Thing is the reversal, because, what's likely to happen is that the market it uh it breaks out of the highs, do a pullback and then continue breaking out the new highs and continue its uptrend. So bear this in mind. So with that said, i wish you good luck and good trading. I will talk to you soon.

You.