Distinguishing between retracements & reversals

Quote from bobcathy1:



It pretty much works for all time frames.
But I use it on a 185 tick chart or 15 minute.
Look at the black lines for the example.

After this particular divergence the market rose over 30 points.
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is that a macd histogram at the bottom of your chart example? thanks for the details.
 
Quote from Boomer:



is that a macd histogram at the bottom of your chart example? thanks for the details.
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That is a Fisher....but if your charts do not have it......MACD is pretty close to it.:)
 
Quote from daytraderpete:

when a retracement is deeper "than it should be", it has a good chance to be a reversal.

DTP
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Using this by it self is heavely dependent on the type of trend your looking at.
 
Quote from sulong:



Using this by it self is heavely dependent on the type of trend your looking at.
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That's why it's difficult to keep it simple.

Define your terms, determine what you're willing to risk, then follow your rules every time until you have proof they require modification.
 
There are 2 methods I know of without indicators. One is when the recent support on a 3-5 min chart is also broken. This means the market sometimes needs to sell off more. Another is when it breaks a 75-80%retracement mark and has trouble going back up. Then it stalls and falls.
Some really good candle readers use reversal bars to get in. Then use trend lines and tight stop at the recent high (plus a little). Then just treat it like a retracement and yet ride it to maximize the gains. Also if it's hit a number that's a big resistance level, higher chance that it might be a reversal.
Hope it helps and hope I made it clear.
 
Quote from dbphoenix:



There's also the issue of S/R. Reversals are far more likely to occur when S/R is tested during the main thrust of the trade. But if price turns for no special reason and tests S/R in the counter-thrust, you're more likely to be looking at a ret.
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Thanks Db,

You've always been very helpful. I have a question in relation to S/R levels or even with pivots. On days when these levels are very close to each other (maybe 4pts or so apart on the NQs) do you treat your setups differently knowing that the next resistance/support level is close by on the upmove/downmove?
 
Quote from sulong:



Using this by it self is heavely dependent on the type of trend your looking at.
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Thats exactly right. I should have quantified my statement by adding that I only consider a deeper retracement to be a potential reversal when ADX is over 40.

DTP
 
Quote from arzoo:


I have a question in relation to S/R levels or even with pivots. On days when these levels are very close to each other (maybe 4pts or so apart on the NQs) do you treat your setups differently knowing that the next resistance/support level is close by on the upmove/downmove?
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I look at all S/R as zones rather than specific prices, but that has to do with the setups I use. You may find it necessary/useful/desirable to use specific prices. If the whole S/R situation is especially muddy, however, I tend to stand aside and wait. A clearer setup generally presents itself.

If this is a continuing problem, I suggest the use of filters. If you like MACD, don't trade unless the MACD is doing something in particular, or the histogram is outside a certain range. If you like stochastics, don't trade if the one you've plotted is between 70/30, or 80/20, or whatever. If you use ADX, don't trade if it's under 20. Or over 60. Or whatever. Or volume is less than some level. Or the bars overlap too much. Point is to prevent yourself from seeing something that isn't there just because you're bored, or because nothing has been happening for too long and you see potential activity where there really isn't any.
 
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