Lesson 18: Catching reversal

Published 20.03.2015 at 12.22 PM.

Dear fellows!

Recently, several good non-retracement trends have formed on most trading instruments. And we never follow the road less travelled trying to stand against the trend. As a result, we have to cut quite big losses. Yours truly is not an exception. What else should I do if there are trend-reversal patterns pointing to entries at the very bottom? Besides, there is a psychological factor. Suppose, you’ve missed an entry and the market reverses right at that point! Believe me missed profits feel much worse than cut losses.

 

On the other hand, how many of you did keep a mid-term deal up to an expected price? Given various polls, not many. It is holding positions to the TP level that makes our strategies lucrative, with positive expected value as they say.

For example, a reversal in the GBP/USD pair was projected recently based on the completed ending diagonal in the last bullish wave 5. The pattern will be invalidated when the price hits the high above 1.7720. The price should go back to the price, at which the pattern started unfolding, which is the start of wave 1 (1.6252). But given the fact that we trade on daily charts, violations of around 50-100 pips can be ignored as we fix profits when the price reaches a particular area. So how many players managed to hold the deal till the very end in your opinion? Even not a very good entry at 1.7000 could generate a 700-pip profit!!!

But it wouldn’t be nice of me to show a winning deal and keep silence about losing entries. So here is the Saucer pattern formed in the H4 time frame.

According to the pattern rules, profits should be fixed at the break of the bottom. Imagine we would gradually add to losses instead of closing them. Here’s an example of what would have happened. It is an equity curve of some managing trader who was applying Martingale in this period.

So the questions are:

  • What conclusion can be made based on the above examples?
  • Is it worth trading on reversals?
  • What rules should you follow?
  • How to avoid losing an entire deposit in a day?

 

Please share your answers with me in comments.

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