Trading stocks education - Trading tactics & examples
Trading Triggers - Part 1
Reversal bars are an objective technique used to time the entry of a trade. When pattern, price and time all come together at a suspected major pivot, and you hesitate while wondering if the prior trend will continue against your new position, a reversal bar can be the objective trigger to prompt you to take action. The examples demonstrated below have many variations. The example given is not the only possible configuration for that reversal bar type. The important concept is that with every configuration, prices make a new high (or low) but close opposite the direction of the open and the trend. The reversal bar is telling you that the trend for that time frame has run out of gas and that no new buyers or sellers are coming into the market. For bullish reversals just substitute low for high.
Not every reversal bar is significant. This is especially true for intraday charts. Reversal bars take on importance when they occur at a coincidence of pattern, price and time.
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Snap Back Reversal Bar
- Day 1 makes new High, opens bottom 1/3 of the bar, closes top 1/3. Day 2 opens top 1/3 of the bar, closes bottom 1/3, does not have to make new High.
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