Reversal set-ups
Reversal set-ups seek to identify intraday swing points at pre-identified potential Support/Resistance/SBR/RBS that may or may not coincide with swing points on the time frames above the trigger time frame. Reversal set-ups can indicate out and out reversals or merely trade-able pull backs in a trend.
The rule of thumb is that the stronger the trend, the stronger the potential Supp/Res zone should be sought at which to identify a set-up, with at least an intermediate time frame supporting Reversal set-up to provide further confluence to the trigger time frame Reversal set-up.
There are 4 Reversal set-ups; Reversal types A,B,C and Extreme.The Reversal type A and Reversal Extreme set-ups have slight variants known as Reversal A ii and Reversal Extreme ii.
* Reversal types A and C set-ups can occur with regular immediate or regular sequential divergence.
* Reversal type Aii set-ups tend to exhibit regular sequential divergence in the main, but can also occasionally exhibit regular immediate divergence.
* Reversal type B set-ups tend not to exhibit regular sequential divergence, - mainly regular immediate.
* Reversal Extreme set-ups exhibit extreme oscillator readings and a CCi hook, as opposed to divergence.
* Reversal Extreme ii set-ups exhibit Macd extremes at the same time as Osma/CCi regular immediate (same peak/valley) divergence from an original extreme reading.
NB: In utilising the Reversal set-ups, keep in mind that for oscillator divergence to be valid;
a. Bullish – price must reach an equal or lower low in a downtrend/range as the oscillators print an equal or higher low.
a. Bearish - price must reach an equal or higher high in an uptrend/range as the oscillators prints an equal or lower high.
Reversal type A
A Reversal type A (Rev A) set-up exhibits the following;
* A 4bol flip (10/20/40/60bols in descending order- Bearish, ascending order-bullish) [ie bol band deviation/extreme deviation.]
* Regular immediate (separate peak/valley) or regular sequential divergence in Osma,
* Regular immediate (separate peak/valley) or regular sequential divergence in Macd.
Bullish and Bearish examples of a Rev A are shown below;
The examples above exhibit regular immediate divergence. There follows an example of a Rev A that exhibits regular sequential divergence;
Bearish Rev A seq
Bullish Rev A seq
Reversal type Aii
A Reversal type Aii (Rev Aii) set-up exhibits the following;
* A 3bol flip (10/20/40bols in descending order- Bearish, ascending order-bullish, inside or straddling the 60bol) [ie bol band deviation/extreme deviation.]
* Regular immediate (separate peak/valley) or regular sequential divergence in Osma, Regular immediate (separate peak/valley) or regular sequential divergence in Macd.
Bullish and Bearish examples of a Rev Aii are shown below;
Bullish Rev Aii seq
Another Bullish example is shown below;
Bullish Rev A ii
The Bullish Rev Aii above exhibits regular immediate (separate valley) divergence in the Osma.
Bearish Rev Aii
This Bearish Rev Aii set-up below exhibits regular sequential divergence in the Osma.
Reversal type B
A Reversal type B (Rev B) set-up exhibits the following;
* An initial 4bol flip (10/20/40/60bols in descending order- Bearish, ascending order-bullish,) [ie bol band deviation/extreme deviation.] after which the 10bol comes inside the 40bol and sometimes the 60 bol.
* Regular immediate (separate peak/valley) divergence in Osma (In a Bullish set-up histogram remains above the zero axis. In a Bearish set-up histogram remains below the zero axis.)
* Regular immediate (separate peak/valley) or regular immediate (same peak/valley divergence in Macd….more usually same peak/valley
Bullish and Bearish examples of a Rev B are shown below;
Bullish Rev B
There follows a further example of a Bullish Rev B;
Bullish Rev B
There follows a Bearish Rev B set-up;
Bearish Rev B
There follows a further example of a Bearish Rev B
Bearish Rev B
Reversal type C
A Reversal type C (Rev C) set-up exhibits the following;
* An initial 4bol flip (10/20/40/60bols in descending order- Bearish, ascending order-bullish,) [ie bol band deviation/extreme deviation.] after which the 10bol and 20bol come inside the 40 and 60bols and flip again, inside or straddling the 60bol.
* Regular immediate (separate peak/valley) or regular sequential divergence in Osma
* Regular immediate (separate peak/valley) or regular immediate (same peak/valley) or regular sequential divergence in Macd/CCi.
Bullish and Bearish examples of a Rev C are shown below;
Bullish Rev C
There follows a Bullish Rev C set-up that exhibits regular sequential divergence
Bullish Rev C seq
Bearish Rev C
There follows a Bearish Rev C set-up that exhibits regular sequential divergence
Bearish Rev C seq
The preferred bols configuration for a Rev C is when the 10/20bol flip occurs inside the 60bol, as opposed to straddling it;
Reversal Extreme
A Reversal Extreme (Rev Extr) set-up exhibits the following;
* Well diverged 4 bol flip (10/20/40/60-ascending/descending order in bearish/bullish set-ups.)
* CCi hooked back into it’s own bol from an extreme reading at the Open of the trigger reversal candle. (see Note i)
* Osma and Macd at extreme readings
* Price breeches the 61.8 Support/Resistance Channel as a minimum.
Note i.
The rule of thumb in respect of the trigger reversal candle (re individual Price Action Analysis) is that the CCi hook should be back inside the bol at the Open of the reversal candle…The exception is when there is local divergence in the CCi and/or a whole reversal candle closes outside the 20bol.
Bullish and Bearish examples of a Rev C are shown below;
Bullish Rev Extr
A Bearish Rev Extr set-up is shown below;
Bearish Rev Extr
NB: A Rev Extrset-up on the trigger chart without a confirming set-up on the intermediate chart most likely represents overbought or oversold conditions on that chart only NB: ie against trend it is advisable to seek an intermediate + confirming set-up.
Reversal Extreme ii
A Reversal Extreme (Rev Extr ii) set-up exhibits the following;
* Following an initial Well diverged 4 bol flip (10/20/40/60-ascending/descending order in bearish/bullish set-ups.) the 10 bol comes inside the 20bol.
* CCi hooked back into it’s own bol from an intial extreme reading now exhibits regular divergence
* Osma now exhibits regular immediate (same peak/valley) divergence from an intial extreme reading.
*Macd now exhibits a more extreme reading than at the initial 4bol flip.
* Price breeches the 61.8 Support/Resistance Channel as a minimum.
Bullish and Bearish examples of a Rev Extr ii are shown below;
Bullish Rev Extr ii
A further example of a Bullish Rev Extr ii set-up is shown below;
Bullish Rev Extr ii
There follows a Bearish Rev Extr ii set-up;
Bearish Rev Extr ii
There follows a further example of a Bearish Rev Extr ii set-up;
Bearish Rev Extr ii
NB: The Rev Extr ii set-up may appear after a Rev Extr (at which there is no pre-identified potential Supp/Res/SBR/RBS) or when Osma reaches an extreme first and Macd does not. Sometimes both Osma and Macd reach an extreme but the 4Bol flip isn’t in place for a Rev Extr set-up, the bols developing into a Rev Extr ii set-up as price action continues.
Guidance onusing Reversal set-ups for market entries.
a.When a strong trend exists, particularly when the trend time frame trend is coexistent with the longer time frames trend, it is advisable to favour Re-entry set-ups. Sometimes even a trigger time frame Reversal set-up with an intermediate time framesupporting Reversal set-up can indicate just a shallow albeit trade-able pull back in the prevailing trend.
The rule of thumb is that the stronger the trend, the stronger the area of potential Supp/Res/SBR/RBS should be sought at which to identify, at which to act upon a Reversal set-up.As a minimum an intermediate time frame supporting set-upis always preferable in such market conditions.
b.It is advisable not to act on a Reversal set-up where only minorpotential Support/Resistance exists, (egDaily or Weekly Mid pivots.) There should be at least one main identifiable Support/Resistance factor per the Identifying Potential Supp/Res/SBR/RBS methodology, if acting upon a Reversal set-up.
c.It is advisable only to act upon a trigger time frame Reversal set-up that is not supported by any intermediate + time frame set-up, in an intermediate time frame range - not against a trend that exists beyond the intermediate time frame.
d. These Reversal set-ups signify either a pull back in a trend or a complete trend reversal area if present on enough time frames, but care should be exercised in expecting large targets if against a strong trend, as described above. The preference should always be to stay with the trend in a strong trend, but on rangy/weak trend days and indeed in a strong trend these set-ups provide high probability trading opportunities for identifying pullbacks / retraces in trend or complete reversals thereto.
A word to the wise about trends: For some reason there is a tendency when price starts to trend to always be looking for a trend to end, you know the thing,
' this must be the top or bottom ‘ Why?.. If a trend exists the preference should be with the trend and caution should be exercised in trying to reverse (go against) the trend particularly if it exists on the longer time frames that extend past thetrend time frame. Price does however retrace/pull back in a trend, and these are very trade-able if identified correctly.
e. Unless there were exceptional factors it is advisable not to trade a trigger time frame Reversal set-up that exhibits regular sequential divergence that was supported only by an intermediate Reversal set-up that too exhibits regular sequential divergence. The preference should be for at least one of the set-ups, either thetrigger or the confirming intermediate time frame set-up to be exhibiting regular immediate divergence.
Exceptions to this general guidance might include where such a set-up (s)occur at a strong cluster area of potential Support/Resistance/SBR/RBS and/or a clear supporting Reversal set-up on the trend time frame +is present. A further exception might be that there are strong supporting conditions on the optional Small charts.
f.If day trading be aware of the intraday range in relation to it’s average pip range. Be aware too of the current weekly range in relation to it’s averages, particularly if utilising higher time frames. A large deviation from these averages means that there is a higher statistical probability of a reversal/deeper pullback than not.
g. There exists a custom indicator that can be referred to at the start of each session, to measure these averages as shown below;
In the same way, be aware too of price’s intraday relationship to it’s pivots. Any extension beyond R2 or S2 again results in a higher statistical probability of a pullback.
This wider appreciation of the market and it’s ranges is useful in this respect, but it is advisable not to base trading decisions on it exclusively.
h.Generally,these Reversal set-ups can indicate either a pull back in a trend or a complete trend reversal area if reversal set-ups are present on enough time frames, but care should be exercised in not expecting large pip targets if against a strong intraday trend as described above, particularly if the trend time frame trend is coexistent with the longer time frame trends.
i.In order to help memorise the Reversal set-ups it may be useful to use the following summary;
Oscillator extremes or required divergence with;
4 Bol flip [10/20/40/60]…………….. Reversal Extreme and Reversal type A
*On all other Reversal set-ups, a 4Bol flip first, then required divergence as;-
10Bol comes inside 20Bol……………………………………………..Reversal Extreme ii
10Bol comes inside 20 & 40Bol……………………………….……….. Reversal type B
10 & 20Bol now come inside 40 & 60Bol, and flip again…..Reversal type C
10 & 20 &40Bol come inside 60Bol and flip again...... Reversal type A ii