Day Trading: Intraday Price Reversals
Using Price Action To Trade Intraday Reversals
Reversals and What Causes Them
A reversal is a turning point in the market. It can be temporary (a short-term fluctuation in a continuing trend) or major (an intraday high or low). The ability to spot reversals can significantly improve trading strategies.
Reversals are primarily caused by changes in supply and demand. A reversal might happen when buyers become more aggressive, increasing their bid prices to meet offers, which can drive the price up. Liquidity, or the volume of shares traded, also plays a role in reversals.
Predicting Reversals
It’s impossible to predict reversals with absolute certainty. However, traders can increase their chances by considering various factors:
Conditions: These give us clues about potential turning points. Factors like the duration and urgency of the price move, the time between rotations, presence of a catalyst, the time of day, and the higher time frame price position can be crucial in predicting reversals.
Levels: These help with timing the trades. It’s beneficial to be aware of historical price levels, today’s open high-low (OHL), expected daily range, and any key levels (both static and dynamic) that could influence trading decisions.
Trade risk: It’s important to assess risks associated with a trade to ensure there are no hidden risks.
Trade structure: A good trading plan should have a favorable risk-reward ratio and a high probability of success.
Final Thoughts
Learning to navigate market reversals can indeed be a game-changer for your trading journey. It encourages you to continuously learn and adapt your strategies based on market conditions.
It might be challenging initially, but remember, it’s a marathon, not a sprint. The more you learn and apply, the closer you get to honing your trading skills.
If you want a quick guide for assessing market reversals, check out my Price Reversals Checklist PDF.
This is part 1 of the Intraday Reversals Webinar. Click here to proceed to Part 2.