More and more I have started looking at reversals recently. For that I want to thank you guys, all of you. I started Forex4Noobs with the intention of helping people with their trading but in the process I have learned much about my own trading. Teaching my method to all you guys has forced me to look at my method and in looking at my method I have learned much about it. Since opening this site about 1 year ago I have grown as a trader, I hope you guys have too.

Anyway the reason I write this is because I have realized I am a little too rigid with my method. These two trades I am about to explain are what made me come to this realization. Neither of these trades are real trades based on my method, that doesn’t matter though they both worked. See the concepts I use in my trading; candles, S+R lines, and price action are really the fundamentals of trading. They are the rawest, truest and most organic forms of technical analysis. Limiting them to a method is misusing them so I have decided not to limit them anymore. Does this mean my formed method is invalid? no the basic concepts of it are still very valid but at the same time a lot about my method will change. On that note lets dissect this reversal trade.

For 8 day I watched and waited for GBP/JPY to break through that 214.00 area. All that time waiting for a trade while the pair was stuck in such a tight range was tough but this is what defines us as traders. Traders, true traders know that the trades will always come, and that sometimes they just have to wait. The people who abandon their trading method and run off in search for a new method just so they can take a trade will likely never make it. Being able to stick it out through periods like this proves that you have what it takes to be in this business for the long run.

Finally on the 8th day of this cumbersome range the price broke through the 214.00 area and it made for a great trade. The bulls pushed up but eventually they stalled:

What does this mean though? Well the bulls and the bears are two opposing forces. The bulls want to go up, that’s all they want, always forward not one step backwards. The bears are the opposite they want to push down, always down not one step backwards. So every little pip movement shows us a struggle between the bulls and the bears. If in one tick the pair moves up a pip the bulls just won that tick, if it goes down the bear’s just won that tick. You have to imagine that every move the pair makes is part of a never ending struggle between the bulls and the bears. When you see a bullish candle form on your chart it tells you that the bulls are stronger and they’re doing their job, pushing the market up. Conversely when you see a bearish candle it means the bears are stronger and they’re doing their job, pushing the market down.

So what is a range then? A range tells us that neither side has the strength required to move any significant amount of pips in its natural direction. The bulls try to push up but they’re hindered by the bears, the bears try to push down but they are hindered by the bulls. No side can win the battle until one side gains the strength required to break out. How do the bulls or bears gain that strength? Well it could be a number of things but this time it was pushing through the 214.00 resistance area. When the bulls pushed through that resistance area buyer confidence instantly grew and they started buying. So the bulls got stronger and they started pushing up further and further. It was a bullish breakout.

Then after some nice bullish movement all of a sudden came the reversal candles:

What do the reversal candles tell us? Well they tell us that the buyers lost their confidence so the bulls have lost their strength. The bulls are again equally matched in strength by the bears. No direction is favored because neither the bulls nor the bears have the strength to breakout yet. These reversal candles say to us that the bullish run is dead for the moment and that the market will possibly turning around. However in trading ‘possibly’ is not good enough just because we see the possibility of a reversal we cannot take the reversal. Taking it based solely on ‘possibly’ is gambling and we are not here to gamble. So what do I do? I wait for confirmation of a reversal, I set a line and I say to myself ‘when it crosses that line I will go short’. See the crossing of that line is only significant because it confirms the reversal; it tells me the bears now have power and the bulls are weakened.

The line I set was the purple 215.11 seen in the 4hr chart above, below you can see the line on the 15 min chart :

Now this line plays absolutely no significance in my trading at any other time. It is however a minor S+R line and looking at the line on the 15 min chart you can clearly see that. We get four very clear bounces from the line, sure there is 1-3 pips of difference but on a 4hr GBP/JPY chart that means nothing. I placed this line because it is the nearest applicable S+R line. Even though it is a very minor line and I wouldn’t normally use it the line does represent some form of support so if it breaks it does indicate the bears are gaining power over the bulls. When looking for reversal confirmations I am willing to use minor lines like this.

Eventually the 215.11 line broke and as you can see in the 15 min chart pic above when it broke it went right down. From here I am sure you know what you have to do, get in and make some pips! Now personally I only took 35 pips here, I already had 65 pips for the week, I took 35 pips to make it an even 100 pips. I had already stopped trading for the week so I really did not want to push it. I am a very disciplined in my trading, I do not need 2000 pips per week, I have a target of around 100 pips and when I reach it I’m done. I spend the rest of the week relaxing and enjoying my life. I knew this trade was very possibly worth more than 35 pips but what can I can I say I wanted to wrap-up my week.

One more thing about this trade is that we saw three reversal candles. The more reversal candles the stronger the chance of reversal. Especially when they do what we see in this pic below:

And on the 15 min:

Both of these candles bounced away from the same high, that instantly tells us that the bulls have hit a barrier and that they do not have the strength to push any further. The fact that they cannot make a new high is very telling; it suggests that they are losing strength rapidly. So this supports the idea of a bearish reversal an seeing something like this should give you more confidence when entering a reversal.

Oh and that 215.85 line is now a scalp line!

Anyway guys I hope this helps and if it does say thanks! If these posts aren’t useful I do not want to waste 2 hours on my Sunday making them. So if you find this stuff useful let me know.