The trend trading strategy has always been the favorite trading method of the elite traders. After joining the investment industry, you might have head to trade with the trend only. Though it can eliminate many false signals, many retail traders often use the reversal to ride the fresh trend. Reversal trading method is a very complicated process. It requires in-depth technical and fundamental knowledge. In fact, skilled traders often find it hard to find a critical trading spot when it comes to the reversal trading method.
Do you know many skilled traders’ trades the major reversal with extreme confidence? They never feel fear to place a trade against the established trend. You might be wondering they have a secret formula or the most expensive trading bots or EAs. Read this article, and you won’t require any secret formula or fancy trading bots to trade the major reversal.
Use of indicator
You have to use the traditional indicator to find the overbought and oversold state of the market. The naïve traders can use the RSI or the stochastic indicator to find the key reversal point. Let’s say you are using the stochastic indicator to assess the state of the market. If the signal curve in the stochastic indicator trades above the 80 mark, it means the market is trading in the overbought territory. On the other hand, when the signal curve trades below 20 marks, it means the market is trading at the oversold territory. After knowing about the state of the market, you have to start analyzing the candlestick pattern.
Looking for the reversal candlestick pattern
Trading the major reversal requires a precise understanding of the Japanese candlestick pattern. The use of Japanese candlestick patterns to place the trade at the critical support and resistance level is known as a price action trading system. As a price action trader, you should look for the best Forex account Australia so that you don’t have to become frustrated by relying on the indicators reading. Instead of learning the complicated candlestick pattern, focus on the reliable reversal pattern. For instance, you have to look for a bullish morning start or engulfing pattern to execute long orders. On the other hand, when the price hits the overbought territory, look for the bearish evening star or engulfing pattern. Once you start to trade the overbought and oversold market with the help of a Japanese candlestick pattern, you can easily improve your trading skills.
Using the Fibonacci retracement tool
To trade the major reversal, you have to use the Fibonacci retracement tool. Instead of relying on the different Fibonacci retracement levels, you should focus on the 61.8% retracement level. If the price breaks the 61.8% retracement level, it indicators the market is changing its trend. Look for the new support or resistance level so that you can place the trade in favor of the newly established trend. The majority of people don’t even know how to draw the key retracement levels in the trading asset. Always use the most recent swing high and low to find the important retracement level in the price chart.
Managing the risk
By now you know the proper way to trade the key reversal. Use the above-mentioned tips and try to trade the key reversal in a demo account. Without learning to use the demo account, you should not try to trade with real money. Once you start trading the key reversal in the demo environment, you must learn to deal with the risk exposure. Since trading against the established trend is a very risky business, you must risk only 1% in each trade. Learn to use the trailing stops so that you can boost the profit factors to a great extent. But never push yourself to the extreme limit with the hope to become a millionaire in time.