I've spent countless hours over a span of literally years pouring over books on technical analysis in the hopes of finding that elusive "edge" that everybody's talking about. I guess we can debate about what that noble aspiration entails, but I slowly came to a realization that it wasn't to be found in any books. I won't deny the fact that most of the crap written in those one-size-fits-all, you-get-it or you-don't, manuals are worthless, but there's no denying that they are in fact crap nonetheless. Be that as it may, I did come away with a profound sense of pride in learning the common thread of success that tied great traders together in one hell of a tangled knot. Just as the most important mantra in runing a brick and mortar shop is "location, location, location", the key to becoming a successful trader is "timing, timing, timing". This brings us to the subject of reversals. In my dictionary, timing is defined as nothing other than a technique of entering or exiting a trade just prior to a trend reversal. I believe all distinguished traders are well versed in this concept. Unfortunately, this is the least understood idea among the majority of traders. Hence I would like to devote this thread solely to the discussion of market timing, aka reversal. What is your defintion of a valid "reversal" insofar as timing is concerned?
Look at a candlestick chart, the wicks tell all. Here is an example, you could argue that this is cherry picked and you would be correct. If you could catch every reversal you would be rich in no time; if you can catch the big ones though and ride the trend you should do alright.
Let's postulate a display of ten simultaneous time frames, monthly down through five seconds. Which reversal might you be looking for?
I would define this as prophesy and comes under my 2nd mantra... there is no profit in being a prophet. A reversal signal comes after PA has reversed and any candlestick book is full of them.
agreed. trying to pick tops and bottoms is what amateurs do. Trying to take a slice somewhere out of the middle is where successful traders generally concentrate.
In my dictionary, you can define reversal via supply/demand analysis. Simply, when supply changes to demand or vice versa in the price action... It's a reversal. As for a visual definition, that's tough because if you change the time frame from one trader to another trader... The same price action may be a reversal to someone while a continuation to another because they are using different time frames. For example, a reversal price action at 10am est on the 5min chart for one trader may be a continuation price action on the 1 hour chart for another trader. Therefore, based upon my definition via supply/demand analysis... Reversals can occur at tops or bottoms, reation lows/highs like higher lows or lower highs et cetera. Therefore, too many traders will have a generic view in error that reversals are tops and bottoms only. Mark
Here is a 10 minute chart of GOOG was looking for a reversal around 417 it actually came around 415. If this was easy everyone would do it. You want your stop close a few points underneath.
It all depends on what your TIME HORIZON is. Are you trading off of Monthly signals? Weekly? Daily? Look for the technical analysis definition of KEY reversal, and go from there . . .
There is not one answer. A reversal for somebody could be a retracement for another while it could be a red candle to another. It depends on the time frame you are watching, how you define a trend, etc. Once you decide one a time frame, you can then decide and define what, to you, constitutes a trend. Once you do that you will be able to say the trend is down (or up or non existent). Once you define what makes a trend a trend you will be able to see when those things happen again, in the other direction: eg reversal.