Reversals are where traders make the biggest gains, but spotting them requires precision and patience. This cheat sheet will teach you practical and actionable steps to identify reversals using price action. No fluff—just real, proven techniques to help you avoid fakeouts and catch the perfect entry. 💯
How to Identify Market Reversals: Key Steps 🔑
1️⃣ Look for Strong Momentum Changes
Bearish Momentum: Long red candles indicate strong selling pressure.Dying Bearish Pressure: Smaller red candles with wicks suggest sellers are losing control.
💡 Tip: The market doesn't reverse suddenly—it shows signs of exhaustion. Wait for confirmation!
2️⃣ Identify Wick Rejections at Support or Resistance
Wick Rejection: Price tries to break below support but gets pushed back up, forming long lower wicks.Indicates buyers are stepping in to defend the zone.
💡 Example: A double or triple wick rejection is a high-probability reversal signal.
3️⃣ Spot Bullish Engulfing Candlesticks
A bullish engulfing candlestick completely covers the prior red candle.This shows a shift in power from sellers to buyers.
🚨 Pro Tip: Combine this with volume spikes for extra confirmation that buyers are serious.
4️⃣ Understand Impulsion vs. Correction
Impulsion: Long green candles with little resistance show strong upward momentum.Correction: Shorter candles show the pullback is weak and temporary.
📝 Strategy: Use pullbacks after impulsion moves for low-risk, high-reward entries.
5️⃣ Confirm Strong Bullish Momentum
A series of higher highs and higher lows after the reversal signal confirms an uptrend.Look for clean breakouts above resistance to avoid premature entries.
💡 Checklist:
Break of structure (e.g., trendline or resistance).Momentum confirmation (long green candles).Entry near the retest of the breakout zone.
Bonus Tips to Perfect Your Reversal Strategy 🚀
Always Wait for ConfirmationNo rejection = No trade. Period.Avoid chasing; let the market come to you.Place Your Stop-Loss StrategicallyBelow the wick rejection or engulfing candle.Keep your risk/reward ratio at least 1:2 or better.Combine with RSI or MACDUse RSI to spot oversold conditions or divergences.Use MACD crossovers for additional momentum signals.Watch for False BreakoutsAvoid entering if volume doesn’t back the breakout.Use smaller timeframes to verify price action near key levels.
Key Takeaways 💡
✅ Reversals don’t happen randomly—watch for signs of exhaustion and momentum shifts.
✅ Be patient and disciplined; enter only on solid confirmations.
✅ Practice risk management and use tight stop-losses.
💬 What’s your favorite reversal signal? Drop it below and let’s discuss!
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