One of the few things I debate in my trading on a regular basis is the criteria used to define a reaction H/L. After myriad discussions with many traders, there seems to be a mixed consensus. I am interested in how people here on ET define a reaction H/L. For the sake of this thread, we will consider an uptrending market. Do you consider the bar with the lowest low preceding a break of the highest high to be a reaction low? or Do two bars with equal lows preceding a break of the highest high constitute a reaction low? or Do both of the aforementioned situations constitute a reaction low? Any thoughts are appreciated.
The answer to your 3 questions is "yes". A "significant" low would be defined by a low price that is preceded and followed by a higher low, depending on the time-frame you're using. More precisely, you can make distinctions between intra-day, daily, weekly and monthly lows based upon the length of the market trend and giving appropriate significance to each when then market turns the other way.
Agreed; it's usually the pattern on the chart and the speed of the underlying's fall that determines the possibility of a recovery after the following bar makes higher lows and higher highs. Among these parameters, volumes, time frame and sentiment play a part as well.