Recognizing Reversals from the Top/Highs

T

trader99

In my trader evolution, I now understand, recognize, and even can capitalize on reversals from the bottom/lows. In the old days, I would lose a lot trying to short what I thought was a downtrend but only faced huge losses with nasty reversals that ripped up. Then I gradually evolved to recognizing the reversals and avoid any trades to actually not only recognizing the reversals from the bottom to capitalizing it by going long and making some money. It's quite a relief. Took a while to recognize that behavior. What a relief!

In my eagerness to go long and being happy that I got rid of a bad habit, I missed out or didn't recognize the REVERSAL signals from the HIGHS. Sometimes you go on long on an uptrend, then all of sudden it reversed! Then I'm caught. Oh sh*t!

In trading, you gotta recognize a lot of things: 1) uptrend 2) downtrend 3) reversals from bottom 4) reversals from top/highs 5) choppy 6) consolidation etc.

Now that I kinda able to recognize trends and don't do stupid countertrend anymore, I feel my next stage in evolution is learning to recognize reversals from long trends. In that past, I was just blindly countertrend and short the highs. Now, I'm not that stupid anymore about countertrend trading and stick with the long bias in an uptrend. But now I realized, it's more NUANCED than that.

So, how do you guys approach this? I don't think it's as simple as the complement/opposite of the signal that tells me the reversal from the bottom. I think the reversal from the top is harder to see/recognize in real time until it's too late.

I guess the simplest first stab at recognizing reversals from the highs is trying to see lower highs and lower lowers(?). But sometimes that happens and it hits support and just bounce right back up.

hmm...
 
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trader99 said:
In my trader evolution, I now understand, recognize, and even can capitalize on reversals from the bottom/lows. In the old days, I would lose a lot trying to short what I thought was a downtrend but only faced huge losses with nasty reversals that ripped up. Then I gradually evolved to recognizing the reversals and avoid any trades to actually not only recognizing the reversals from the bottom to capitalizing it by going long and making some money. It's quite a relief. Took a while to recognize that behavior.

Anyhow, now I'm trying to figure out reversals from the highs. In my old stupid countertrend days, I would try to time the top and short and would lose a bunch accordingly. Now I avoid that. I recognize an upward trend and jump on for the ride on the long side. What a relief.

In my eagerness to go long and being happy that I got rid of a bad habit, I missed out or didn't recognize the REVERSAL signals from the HIGHS. Sometimes you go on long on an uptrend, then all of sudden it reversed! Then I'm caught. Oh sh*t!

In trading, you gotta recognize a lot of things: 1) uptrend 2) downtrend 3) reversals from bottom 4) reversals from top/highs 5) choppy 6) consolidation etc.

Now that I kinda able to recognize trends and don't do stupid countertrend anyhow, I feel my next stage in evolution is learning to recognizing from long trends. In that past, I was just blindly countertrend and short the highs. Now, I'm not that stupid anymore about and stick with the long bias. But now I realized, it's more NUANCED than that.

So, how do you guys approach this? I don't think it's as simple as the complement/opposite of the signal that tells me the reversal from the bottom. I think the reversal from the top is harder to see/recognize in real time until it's too late.

hmm...
More...

this is a great question, which also indicates you are 'pretty much there' in terms of profitability :)

that said - here is the bad news... it's nearly impossible to read tops, because they are decided by my pro boys in secret meetings.... this sounds like a joke, but it's not.

I posted a few times - monitor the sentiment, you will get some clue when/how deep my boys will knock this down... you may not time it right, but at least you may be able to allocate in anticipation, as well as have an idea how deep the knock down might be...

in my thread 'trading is easy' and other posts, I have laid out the relationship between the forexIG sentiment and the correction depth... my boys are trying to reach the optimal compromise between knocking short term speculators off the the rally train, vs. allowing shorts/flats to buy back in.

I said 'nearly' impossible, because in rare situations, you can see they try to distribute quietly for a couple of days before the knock down.

You are absolutely right... bottoms you can see from a mile away... emotions/volumes are both high and it's crystal what the participants are experiencing and likely to do...

The tops - it's sleepy and boring and you can't read much.
 
Reversal or Retreat are often depending on what time frame charts you are using. It is one of the trickiest things in trading. Often people advice not to play the top or bottom, just to catch the big chunk of movement in a strong trend and be happy with that, and it is much relaxed way to profit if you recognize the trending correctly.
 
jl1575 said:
Reversal or Retreat are often depending on what time frame charts you are using. It is one of the trickiest things in trading. Often people advice not to play the top or bottom, just to catch the big chunk of movement in a strong trend and be happy with that, and it is much relaxed way to profit if you recognize the trending correctly.
More...

I wasn't really trying to catch tops/bottoms. Maybe I was implicitly? Hmm..

Anyhow, what I mean is more of an early signal to get out fast! Rather than wait for it to reverse even more and lose all open profits and turn into losers.

Maybe it's all about trade management.
 
I have developed over decades 2 dozen patterns that test over 60%, works best on monthly/weekly charts, and gets down to one minute bars, percentages drops. Smaller timeframes, price is often random or intense volume pushes IMHO.

Where is price in the swing, too early the highs are near to the lows so more congestion and congestion near the lows often means to me it will go higher. So using a little of Elliott, one is seeking wave 5. SO deeper into trend. Breaking of pivot highs by small amount is a clue, H&S or double right shoulder, also speed of price and lack of volume=better known as insane slope up.

In long term trading of stocks I will hedge open profits when I see possible tops using a mixture of futures and options in case the top is false. I use much more conservative approach concentrating more on less drawdowns and smoother equity curve.

As far as day trading, tops will often be wrong, but I will exit when I see patterns of clustering of highs, better to exit with a profit then nothing. Since I am mainly a scalper, when I see topping patterns, systems stop taking trades.
 

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I know what you mean: sometime you enter a trade in a trend but it is being for a while and close to where reversal or retreat would occur soon, so it is wondering if this is a retreat then you would hold on, but if it is a reversal you would exit. For example a reversal in 1 minute chart would probably a retreat in a 5 minute chart. Besides the time difference, people use other parameters to help identify the reversal and whoever have the best strategy would hugely enhance their profitability, because either exit upon reversal or enter in a different position (L or S) at the juncture would be so critical to avoid a winner turning into a loser, and that happened a lot to most traders.
 
mr trader99
Do you use indicators, moving averages or drawn lines on your charts?

I see that you have been at this for a respectable amount of time.
Tom DeMark is above my pay grade, but may speak to you . . .
cheers
edit 2:28 pm et
A question to SC support board whether they have a Tom DeMark 9 Count study will be submitted. This doesn't look like that to me. Maybe your chart pkg does.
https://www.sierrachart.com/index.php?page=doc/StudiesReference.php&ID=179&Name=Demarker

Tom DeMark
cued to the minute 12:23 seconds of the vid
 
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