Day Trading Reversal Strategy
During the course of any day you will often find many trends within the overall trend. To effectively day trade and thus take advantage of these moves within the large trend, you need to be able to quickly identify changes in short term direction. While you can use many methods to day trade these changes in trend, the “1,2,3″ reversal strategy recognises and provides an entry signal with precision that is rarely matched.
A standard rule of thumb for a downtrend is lower lows and also lower highs, and the inverse for an uptrend. The 1,2,3 reversal strategy will allow you to automatically see this breakdown in direction and thus show you the trend is over for the moment and a potential trend reversal is on the way. In addition to that it can be used for an even safer trade signal entry’s, that is, trades in the direction of the overall trend.
So what is the 1,2,3 reversal strategy? First determine what you are looking for, the overall trend to continue, or the overall trend to stall and retrace. As an example lets use a overall down trend, then the market is retraces against the overall trend. To determine when the overall trend is going to continue you would wait for the market to start back down again and this would be #1. After that the market tries to continue the overall trend, it stalls and fakes up again, but sets a lower high, this is #2. Finally move #3 the market starts again in the direction of the larger trend and on a break of #1′s low you would enter short.
This is simply an example of using the 1,2,3 reversal strategy to enter back in with the overall trend after a retracement has finished. It relies on the basic fundamentals of market trending, which are once again higher highs and higher lows in an up trend, lower lows and lower highs in a downtrend. By recognizing the first change in this fundamental pattern you catch the move very early on. This allows for a high risk/reward setup and also produces a high win/loss ration when used properly. I have included a chart to illustrate the 1,2,3 reversal strategy more clearly. I recommend looking at the chart and re-reading paragraph three at the same time, thus allowing you to see what your reading. If this does not clear it up I have made a video to further shed light on the 1,2,3 reversal strategy. With practice this is a great addition to other methods and pro forex strategies. In coming articles I will illustrate how I combine this method with other forex trading strategies to effectively day trade the forex market. In addition to articles and videos we also offer a 14 day risk free trial to our live forex trading room where you can see us implore this and all our other techniques live!