Day Trading Blog: Trading Plan: Reversal Signals

Saturday, October 2, 2010

Trading Plan: Reversal Signals

Usually I take a counter trend trade when there is a rally or steep sell off into a Decision Point Area. However sometimes prices simply go through the DP Area or just pause making it look like a reversal will happen.

There are several method to estimate if a trend is ending like high volume bars, many orders (ticks per min), or generally prior support and resistance levels. However to none of them work 100% thats why i usually wait for confirmation on the 30 sec chart before entering a counter trend trade.

I found a new tool that might help me seeing reversal bars more clearer, its the DIVERGENT Bar from Bill Williams, works quite good on the 3 min timeframe but I have to evaluate if its really helpful (maybe I modifiy the indicator to have only be displayed on large range bars to avoid exiting trend trades too early)

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Trading Rules:

how to trade profitable? with KSE. knowledge, strategy, execution.
Knowledge: You need to buy low and sell high. So I wait for the price to first go to a prior support level on the daily, 4h, 1h chart.
Strategy: Timing is important so I trade when there is a good setup on the dax, s+p, nasdaq or oil market. My goal is to make few trades with high risk reward, that is archived by either holding a trade till the market closes or reaching a level that sets up a counter trade.
Execution: Usually there is only a 20 point risk involved, so I try to get into a prior support level on the 10 min chart and automatically set a stop and multiple take profit targets.
All the little details how to trade better are listed here but I like to keep it simple: just enter the market at prices with a target that it at least 3 times the initial risk.

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