by TFK6: I have noticed that there are many trend following forex strategies out here. Not so many hardcore reversal forex strategies. And that is a shame. Because reversal forex strategies are those catching the trend just at it starts. They also offer best risk reward ratio and can produce thos trades that old traders brag about.
Strategy I Am going to present to you can produce trades just like that. As it simply finds price that is so far from the center (average price) that its return to the baseline will produce gains that can outweigh potential loss up to a 20 times (at very least).
To time the reversal some creativity and experience is necessary, but I will show you one basic technique that I still use (subconsciously) when looking for a good price.
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Used indicators
Just a moving averages
EMA (exponential moving average) 250 with additional lines of 800 and -800. Additional lines will tell us when the prices reaches so far away from its average (green line) that the reversal is just a matter of time, and therefore winning is just a matter of timing.
There are many tools that can be used to time the entry at this extreme price levels. You also need to be aware that market makers will use many trick at this price. Actually, they will try to use every single trick in the book. If you know what to look for – that's exactly what makes the reversal visible.
Despite many factors in play, there is one simple pattern, reflecting the fundamental principle of reversal – ABC pattern.
ABC pattern is clearly reflected in price – wave geometry of the price at the reversal. It can occur anywhere in the price structure but its significance, so far away from the average price is totally different. At this price it creates something that Elliot observed and named it an Elliot correction wave !
Forex strategy rules
SELL:
Price reaches top red line (+800) of EMA 250. To achieve this rapid price movement is necessary. Price moving rapidly for prolonged time tends to get unstable, creating belly between the price and EMA 250.
Once the price reaches above 800 line we can start to look for reversal pattern ABC.
The ABC pattern for sell orders goes like this:
Price reaches new high (A) and swings low (B) in correction. New higher high (C) fails to be reached and instead price swings low to create new lower low.
We enter the trade once the B low it breached – price close below it.
Stop loss is placed above the C (lower high).
Take profit: Price crossing the EMA 250.
Buy:
Price reached bottom red line (-800) of EMA 250. To achieve this rapid price movement is necessary. Price moving rapidly for prolonged time tends to get unstable, creating belly between the price and EMA 250.
Once the price reaches below -800 line we can start to look for reversal pattern ABC at the bottom.
The ABC pattern for buy orders goes like this:
Price reaches new low (A) and swings high (B) in correction. New lower low (C) fails to be reached and instead price swings high to create new higher high.
We enter the trade once the B high is breached – price close above it.
Stop loss is placed below the C low.
Take profit: Price crossing the EMA 250.
Notes: Reconsigning ABC pattern takes some practice, but its absolutely worth it. This is one of the basic chart formation that once you learn to recognise you can use in any market situation to your advantage.
