Reversal Trading. Reversal phase-1:mrtq13

Reversal phase/trading is the most baffling and perhaps the most profitable phase in a stock's movement..........This could give us huge profit if timely entered. Again,this could give us loses,if wrongly entered..............

Recently,I am working on Reversal trading style. I think this is the most interesting phase of a stock,as it is the recovery phase..........

Believe it-every stock goes down,and that stock will oneday go up................

We need to find out stocks that have gone through heavy correction and now trading in a Flat manner. Or,that it is showing that it is trying to move up.................

Following criteria can be applied to such trading strategy.............

1. The stock must go through heavy correction-big fall..............
2. The stock must show signs of stopping its fall.This is the trickiest part.
3. The stock will show less change in price movement. For example,a lot of small candles with doji.
4. The volume may dry.Less trading.....................However,some spikes in volume may happen...............

After I started working on Reversal trading,I found three stocks to be tradable a couple of weeks ago,which I mentioned in the Yahoo group..............They are AftabAuto,EHL,Niloycem. I have entered into two of them-Aftab and EHL. Let's see if they met the criteria mentioned above.Both Aftab and EHl had almost same pattern. Let's see what Aftab did....................

As you can see below. Aftab had gone through long correction meeting our first critaria...........Now the second criteria had problem. Aftab had flat trading three time in three months. It broke down three times. What to do in such cases. To avoid entering at wrong time and at wrong pattern,we can use some more criteria at this level. For example,we may see if buying is occuring,which we will see in the next image............Also,note the volume.There is not much movement in volume in this level................So,this is recovery phase. This is bottom trading,the trading that every trader dreams of..........






Now to avoid whipsaw or false entry or bad timing for entry,we can use criteria like these :

1. we need to see buying.
2. we need to see breakout of trendline.
3. we need to see price going above moving averages.
4. we need to see volume..........Though this isn't neccessary at this stage...........

But Aftab showed the first criteria to me. See the image.The white candles are buying candle,backed up by volume. Also,see the breakout line(pink line)is upward. Also,the dotted white line is penetrated by the candles,which is another indication of recovery................




Now above mentioned one is one of the many reversal patterns that I like. The pattern goes like this : Fall>Flat trading>Recovery. There is another pattern like this : Fall>Reversal.............This pattern is a bit amusing. It just puzzles! But for a very quick profit,this pattern is interesting...............!!! There is another reversal pattern that doesn't reverse fully. It is a kind of pullback type thing.But the fall is for a longer time than normal pullback..............

Hopefully,we will have more discussions on this..................

What is most important to note about this type of trading is that we are buying at the lowest price,we are trading at the bottom.This is at least better than buying at the top......................

Trade pattern.Find and trade longer term trend...........That gives you better understanding of things,better view of market.................

If you can use it combining with other charts,you will be amazed to see its power.........I hope you understand I am trying to create system for each different strategy. And this is better than sticking to one single thing..........graph4,graph5 etc are the breakout lines.They are developed following certain days and calculations of days.For example,if the breakout is shorter term,then the lime color line will be broken. If the breakout is longer,then the pink line will be broken...........They also work as support and resistance zone..........You would be surprised to see how many times the stock stops their fall at the support lines(Blue and Bright Green color). So,you don't have to draw the lines manually as the chart already has the line...........You can use the four lines instead of bollinger bands!

Above strategy is a very important one. One should be able to catch such patterns and research them.............Note that this is one of the main four trading styles that I talked about : 1. Pullback. 2. Breakout. 3. Reversal. 4. Rangebound.

And above mentioned pattern is one of the important patterns in Reversal trading styles..................There are other patterns in Reversal trading...........