India Markets

Strong or Weak Reversal?

BrandonWendell
Brandon Wendell
Instructor, CMT

At Online Trading Academy, we teach our traders how to use odds enhancers to increase their chances for success in the markets. In my articles, I try to offer additional assistance in identifying trading techniques that may help you. One of the things I learned through my studies of the markets is how to judge the potential strength of a trend reversal.

A bullish trend is a series of higher highs and higher lows.  A bearish trend is when you have lower highs and lower lows.  When the trend shifts from bullish to bearish or vice versa, we see that definition of the trend broken by price.  But how it breaks may offer a clue as to how far the new movement may travel before a large reversal.

When looking at the reversal of a bullish trend, we know that the trend is officially over when lower lows are put in.  But if price makes a lower high before making the first lower low, then it shows the lack of buying pressure in the markets and a larger likelihood that the resulting bearish trend will be stronger.

As seen in the preceding picture, when price breaks to a new low first before making a lower high, the breakdown is likely to pause and retest before continuing.  It could even have a much shorter movement downward before reversing again.

The same is true for bullish reversals of a downtrend.  When there is a higher low put in first before a higher high, then the rally is more likely to continue as the sellers have given up and buying pressure has been building.  But if the higher high is made before a higher low, you are likely to see a correction and retest of the breakout.  You may also see a weak bullish trend resulting from this.

So learn from the markets and from your instructors at Online Trading Academy.  You want the best chances for success and the use of odds enhancers is one way to do that.

Disclaimer
This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.