Trading trend reversals

A Guide to Trading Trend Reversals

As a trader, it’s important to know how to spot trend reversals. It’s particularly necessary if you’re a reversal trader but even as a trend trader, it’s useful to know how to spot a reversal. Indeed, as a trend trader, a looming reversal might very well be the moment to take profits and get out.

Trading trend reversals

 

But after years of trading reversals, I know that it’s often much more subtle than just seeing the price change direction. Not all reversals play out in the same way. There are multiple types of reversals, each with their own characteristics.

 

Some reversals are gradual and look textbook. Other reversals are very unpredictable, volatile and hard to trade. Even others will look like a reversal but eventually continue on their trending path, taking out many traders along the way. Knowing what is what can be the difference between a losing and a profitable trader.

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AUDCHF forex outlook

Weekly Forex Outlook: May 14

Good morning traders! Another trading week has passed and now is the time to look at the opportunities for the upcoming week. My reversal system had a bit of a hard time this week, with a lot of really nice reversal setups without follow through. I’ve had 4 trades that I basically had to cut off around break-even because nothing was happening! Luckily, some of my other systems made more than up for it so it was a good week after all.

 

In the current market environment, I found this quote by Hedge Fund Market Wizard Larry Benedict very fitting and one of the best pieces of advice you can give any trader (it’s a coincidence that I’m just reading this book):

 

Hedge Fund Market Wizard Larry Benedict

 

News-wise, the French election outcome was largely managed well by the market and the Euro sold off after the news in a classic “buy the rumour, sell the news” type of event. The Euro was being bought for a very long time already, so some pressure on the sell-side was to be expected, as I predicted before the election:

 

 

Last week’s market did set us up with quite some good opportunities for next week, so we’ll go over that in a minute. If you want to keep up to date on setups during the week, have a look at my TradingView page. During the week, I will often publish a chart setup over there as well if I think it’s worth looking at.

 

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Trading chartbook

A chartbook can make or break your trading

Keeping a chartbook of trades you have taken might seem like such a random thing to do. A nice to have, for traders feeling nostalgic about past trades, maybe. You might’ve heard people talking about it, but I wouldn’t blame you if you didn’t think twice of it and just went on with whatever you were doing.

 

I’m here to say that such a collection of trade screenshots (sometimes called a playbook or chartbook) is much less trivial. It might even be crucial to your success as a trader.

 

Let’s try this experiment: do you keep a trading journal? If you answered “yes” here: well done! Now pick a trade from 3 months ago and look at just the numbers. From that data, you can probably see it was a winner of a loser, your R-multiple, stop loss and take profit placement, MFE and MAE and so on.

 

But without a chart screenshot,

  • can you tell what you could’ve done better on this particular trade?
  • if you could’ve entered at a better price point?
  • exited with more profit?
  • if there were chart patterns you missed?
  • if that new strategy idea you have would’ve worked out here?

 

No? That’s where a chartbook comes in. And it’s not even the only benefit of keeping track with chart screenshots.

 

Since keeping a chartbook, I found it much easier to stick to the good setups and avoid less than optimal setups. I know what to look for, but that visual double check using screenshots of past setups makes all the difference. But let’s first take a step back. What exactly is it?

 

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Forex buy and sell expert advisor

MT4 EA Course: Buy And Sell

This article is part of a series. Here are the other parts:

 

Welcome to the fourth part of our MetaTrader4 Expert Advisor course! If you haven’t done so, please have a look at first three instalments.

Forex Wall-E

 

Up until now, we’ve just been working with buy orders. But we’re traders, not investors! So rather than a buy-only system, it would be nice if our expert advisor could also short the market. In other words, we want to support going both long and short; buy and sell. We’re still working on our Forex Wall-E expert advisor, so let’s continue where we left off!

 

 

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EURAUD forex outlook

Weekly Forex Outlook: May 6

Happy Sunday, squad! How was your week? I recently decided to do some trading and travelling (’cause why not?) and have just spent my first week in Kyoto, Japan. The combination of a rich culture, beautiful weather and delicious food is really growing on me! For the next couple of months, I’ll continue to combine trading with travelling and Japan was the first on my list. If you happen to live in Kyoto or Tokyo and want to meet up for some drinks, get in touch!

 

Sugoi! Kyoto rocks. Epic culture, beautiful nature and delicious food 🍜🍣⛩🏯😎 

A post shared by Smart Forex Learning – Felix (@smartforexlearning) on

 

Last week had some good opportunities for reversal traders but it wasn’t always as easy to trade. There are still a lot of uncertainties related to the North-Korea conflict and it was a news-heavy week with FOMC speak and an NFP release. This made some markets less predictable than usual but as traders, we have to take the market as it makes information available to us.

 

The most important upcoming event is the second round of the French elections on Sunday (7 May). If you remember two weeks ago, we had a big post-French election gap after the first election round that was almost ubiquitous across many Euro-related markets.

 

French election gap forex

 

By now, Macron seems to be comfortably in the lead over Le Pen, so most of the Euro bullishness should be already priced in. I wouldn’t be surprised to see the euro sell off after the election results since a correction is long overdue and this could be a “buy the rumour, sell the news” kind of reaction.

 

Last week’s market did set us up with quite some good opportunities for next week, so we’ll go over that in a minute. If you want to keep up to date on setups during the week, have a look at my TradingView page. During the week, I will often publish a chart setup over there as well if I think it’s worth looking at.

 

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USDCAD forex

Weekly Forex Outlook: April 23

Hello, traders! It’s time for my weekly forex outlook again! Last week was a relatively quiet week, but two of the setups of last week (the EURUSD 4H long and the USDWTI 4H short) still worked out exactly as planned. I will review the USDWTI trade for you in this week’s trade review. The two other setups (USDMXN long and NZDJPY long) still didn’t yet materialise but they’re quite close, so they are still on my radar. Feel free to include those in your watchlists for this week again!

 

The one real surprise from last week was UK Prime minister May, who indicated that there would be early elections after all. It’s safe to say that no one expected this news and the British pound shot up afterwards, as the markets saw this as a signal that May might gain more support. And with more support, it is thought that she will have an easier time making better deals regarding Brexit.

 

If you want to keep up to date on setups during the week, have a look at my TradingView page. During the week, I will often publish a chart setup over there as well if I think it’s worth looking at.

 

 

Current market behaviour

 

Last week was a shorter week, with Monday off due to the easter holiday. Troubled by continued uncertainty regarding the situation in North-Korea, the US dollar sold off for most of the last week. It did, however, create a double bottom before moving a bit higher in the second part of the week.

 

You’d think that gold would see a steady rise, but it ended the week only a little bit lower than the week before. A lot of money flows are going into the Japanese Yen as well (with the USDJPY steadily declining), but gold is giving us a bit mixed signals and not a clear trending behaviour.

 

It’s worth noting that these days, a lot of the currency moves are fuelled by fundamentals as well. Things like the North-Korea situation, the French elections, Brexit and continued uncertainty on the proposed US tax changes (which might be coming next week) are driving a lot of the markets in the past weeks. It sometimes makes for unpredictable moves, which is something we have to keep in mind.

 

weekly macro outlook

 

Oil, on the contrary, gave us a clear signal last week, selling off for the entire week (as indicated in my last outlook). This was partly fuelled by disappointing oil inventories (there’s too much supply) but also by strong technicals.

 

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usdwti forex

Weekly Forex Outlook: April 17

Happy Monday everyone! I hope you’ve had a wonderful easter weekend or maybe it’s still going on. I’m back in front of the charts, looking for the best setups to potentially trade this week. It will be a shorter outlook this week since two of the setups of last week (NZDJPY and USDMXN) have developed a bit slower than expected. Because of this, they’re still valid and I will keep an eye on them during this week as well. Additionally, Easter Monday is a bank holiday in many countries so less will be happening in the markets.

 

The two other pairs on last week’s watchlist (the EURAUD short and the USDSEK short) did materialise and both could have been traded for a nice profit. The USDSEK one was a little bit challenging to trade however and I’ll go over the trade with you in my weekly trading review.

 

If you want to keep up to date on setups during the week, have a look at my TradingView page. I will sometimes publish a chart setup over there as well if I think it’s worth looking at.

 

 

Current market behaviour

 

Last week was a shorter week, with Friday off due to the holiday. We could see some good price movements before that, though. Trump said he found the USD too strong, which prompted a fast sell-off. Unfortunately, this move wasn’t sustained and the USD crawled back up rather quick. News-wise, the better than expected Aussie employment numbers were of interest, with our AUDCAD sell setup of a while back shooting back up.

 

Forex macro outlook

 

The dollar moved lower for the week. Notice the bottom spike in the chart, which is where Trump initially said he thought the dollar was too strong. This was then followed by the bounce back up.

 

Gold did the inverse of the dollar and moved up for the entire week. This could be explained by the increasing uncertainty regarding the issues with Trump wanting to deal with North-Korea. People are looking to move their money to safety, which they find in gold and the Yen.

 

And finally, we have oil. Last week, we could see some kind of a top pattern forming, with a head and shoulders chart pattern now clearly visible. This might indicate a move lower, and as we had such a nice trending market for the past weeks in crude, it is one of the setups we’re looking at for this week.

 

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Forex Trading Strategy

How to create a new forex trading strategy

When people are looking for a new forex trading strategy, what they really want to know is:

  • How do I create a strategy that works?
  • How do I develop the confidence to trade a strategy I believe in?

 

The first question almost goes without saying. Without a working strategy, there’s no use in attempting to trade in a consistent and profitable way. The second question, however, is more subtle. My opinion is that if you have a working strategy but don’t have a deeply rooted belief that you can trade this strategy, you will fail.

 

Confidence in a strategy will make or break your results.

 

Richard Dennis confidence in trading

 

Fortunately, there is an answer to both questions: testing.

 

Before I ever use a strategy, I will have tested it for weeks. For months. It’s not an extremely difficult process, but it does involve a lot of work. During the years, I’ve tested 100’s of strategies. Most of them failed. Some of them, I could make work. The best ones, I’m trading today. Here are the steps involved to make it happen.

 

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USDMXN forex outlook

Weekly Forex Outlook: April 9

Hi, traders! It’s (a beautiful!) weekend again, so I’m doing my usual routine: trade review, continuous improvement and writing my weekly forex outlook! Last week was a challenging but nevertheless good week. Not every setup from my previous weekly forex outlook did materialise, but that doesn’t matter since we use price alerts to get notified when something happens.

 

If you got in either the CADJPY trade or the AUDCAD trade (which I documented on TradingView), you could have made a nice profit! I did find the lower time frames a bit more random and less clean last week, so mostly stayed out of the 1H charts in favour of 4H and daily charts. Now let’s look at the upcoming week!

 

 

Current market behaviour

 

Last week was an interesting week. Lots of geopolitical events (Syria bombings, Trump-Xi meeting, etc), but the markets keep on going regardless. We also closed last week off with NFP, which must’ve been the biggest non-event of the week! The initial bearish reaction because of lower than expected payroll numbers was quickly faded because of lower than expected unemployment numbers.

 

The dollar kind of bounced around for the first part of the week but then moved sharply higher on Friday. Economic data was mixed but the biggest event (NFP) still managed to push the dollar higher.

 

Crude oil is continuing its trend (which starts to look quite nice on the 4H) and ended the week higher. Crude did mostly rise on the news of Syrian bombings. Syria is not a very big oil producer but its location in the Middle East still warrants carefulness with the traders, hence the push higher.

 

Market overview forex

 

Gold did end higher for the week but obviously turned lower on Friday as traders and investors moved away from risk-on assets after the non-farm payrolls. Gold is also in an interesting spot now, as you can see from the chart below:

 

XAUUSD

 

The price action on Friday resulted in a very nice pin bar on the daily. This pin bar coincides with a previous support-turned-resistance level and it’s now the second time price has tested this level. What happens next will depend for a large part of the geopolitical situation. Gold could move lower, but we need a strong dollar for this. Next week will tell us more.

 

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