Reversal Trading Strategy (+$822) ??
Education
Introduction
Last Friday, I implemented a day trading reversal strategy that led to a profit of approximately $ 822 within just an hour or two. This strategy is versatile and can be applied to both bullish and bearish market movements. In this article, I will guide you through the method I used.
The Strategy Breakdown
The foundation of this trading strategy is based on analyzing two different time frames: the daily and the 15-minute. Here’s how it works:
Daily Time Frame
To begin, we need to identify key levels on the daily time frame. When looking for a potential short position, we plot two critical indicators:
- Highest Close: This is the highest closing price of recent candles.
- Highest High: This is the highest price reached in recent candles.
For a bullish scenario, we would look for the opposite indicators:
- Lowest Close: The lowest closing price among recent candles.
- Lowest Low: The lowest price point reached in the recent past.
Key Levels Identified
In the example of Beyond Meat (BYND), the key levels identified were:
- Highest Close: $ 20.22
- Highest High: $ 21.35
Entering the Trade
Once the key levels are established, we shift our focus to the 15-minute time frame for trade entry. The trigger for entering a short position occurs when we see consecutive 15-minute candles closing below our established key levels.
In this case:
- The first 15-minute close below the highest high ($ 21.35) signaled the first sell opportunity.
- The second close under the highest close ($ 20.22) confirmed another selling signal.
Both signs indicated a full-blown reversal, which enabled a profitable trade, allowing me to capitalize on the downward movement back to the lows.
Conclusion
This strategy can be detrimental to day trading success when executed correctly. Knowing when to enter based on key levels on the daily time frame and confirming signals on the 15-minute timeframe can yield impressive returns, just like the $ 822 I earned on this trade.
Keyword
Day trading, Reversal strategy, BYND, Highest close, Highest high, Lowest close, Lowest low, 15-minute candles, Shorting, Profit, Trading signals.
FAQ
What is a reversal trading strategy?
A reversal trading strategy is a technique aimed at identifying and profiting from price reversals in the market, allowing traders to either short or buy stocks at favorable entry points.
How do you determine key levels?
Key levels are determined by plotting the highest closing and highest high prices for bearish moves, or the lowest closing and lowest low prices for bullish moves, based on the daily timeframe.
What timeframe should I use for entering trades?
For entering trades, the 15-minute timeframe is recommended as it provides more immediate signals for trade execution based on the established key levels from the daily timeframe.
How can I maximize profits using this strategy?
By carefully monitoring the key levels and confirming with consecutive 15-minute candle closes, traders can capitalize on significant price movements, increasing the potential for profitability.
Is this strategy only applicable to shorting?
No, this strategy works for both bullish and bearish movements; you just need to adjust the key levels and signals accordingly based on your market outlook.