Reversals: Video 21 A, B, C & D

Question 1

Define a Reversal:

Answer 1

A Change from one type of market behavior to another.

Question 2

A Bull or Bear trend doesn’t often go into the opposite without entering a trading range

Answer 2

Question 3

All Tails are Reversals

Answer 3

Question 4

Define Minor Trend Reversal

Bull reversal in bear trend usually becomes a bear flag or part of a trading range.

Answer 4

A major reversal requires more bars.

It means the market goes from a bear trend to a bull trend.

Question 5

Sometimes a trading range can contain a Minor Reversal

Answer 5

Video 21A: 10:00in.

Question 6

Minor reversals usually lead to…

Answer 6

Trading Ranges and Flags, bit not opposite Trend

Question 7

Al uses the word “Minor reversal” instead of “Noise. Because nothing is random.

Answer 7

Everything takes place because of logical trades by computers.
Noise cannot exist.
He’s calling these small pullbacks Minor Reversals
Whenever people talk about noise, they are either too ignorant to know what the market is doing, or are simply choosing to ignore what it is doing.

Question 8

5 bars is not enough to lead to a Major Trend Reversal

Answer 8

Assume every reversal is minor until one is strong enough to BO below the Trend Line and last 10 or more bars.

Question 9

A reversal is a type of Breakout

Answer 9

Every bear trend bar is a breakout and bear climax.
Every bull trend bar is a breakout and bull climax.
All reversals begin with at least a small breakout

Question 10

Give Up Bar

Answer 10

Question 11

Since every trend is in a channel, the reversal breaks out of that channel.

Answer 11

Question 12

A Bear trend is in a bear channel and las Lower Highs and Lows

Answer 12

To reverse tp a Bull Trend, need breakout above bear channel and series of higher.
Once there is a breakout above a bear channel, bulls look for a reversal up from a Higher Low.
In the photo there is a bull rally with two legs up. Bulls buy reversal up from Higher Low, hoping it’s the first of many higher lows and start of Bull Trend

Question 13

Here’s an example of a failed bear flag.

Answer 13

Bears tried to break out down but kept failing as noted by lower wicks/tails.
In photo, with each bull trend bar, more traders believed trend was now up.
Notice bull breakout above bear flag, further confirmation of reversal.
Another example of Give Up bar.

Question 14

A Reversal is the earliest entry in a trend.

Answer 14

But the probability is initially low.

There’s always many more Set-ups

Question 15

Another example of breaking out of a channel for a reversal, then a series of Lower Highs and Lows

Answer 15

Question 16

Most resistance will fail in a Trend

Answer 16

Question 17

All Trends end at resistance, so it is important to always keep looking and drawing lines.

Answer 17

Here, there are two ways to draw a wedge.

Also look for Measured Moves

Question 18

Same with Trends, a bear Trend has inertia and most support will fail

Answer 18

This selloff continues to break below support.
Some examples in the photo are: Double Bottom, Major Higher Low failure. Wedge Bottom at the bull breakout point. 50% pullback of entire bull trend.
Bulls keep trying to push up, yet market keeps falling below every support level.

Question 19

If the reversal stays in channel and keeps reversing up from above prior higher lows, the reversals are just pullbacks, and the trend continues.

For a Bull Trend to end, you need….

Answer 19

A break below the bottom of the channel and break below the bull trend line.
Need the pullback to fall below a major Higher Low
After this, it becomes either a Trading Range or a Bear Trend

Question 20

Define 80% Rule in a Trend

Answer 20

80% of Trend Reversal Attempts fail

You can make money selling reversals in a strong bull trend, but it is always only a scalp

Question 21

Bigger reward comes with ___________

Answer 21

Lower Probability

Accept lower probability of success. 40% success, so most reversal trades fail
The stop is not far, so the reward is much bigger than the risk more than offsets the lower probability.

Question 22

For a higher probability reversal, wait for a ____________

Answer 22

Breakout

The probability can be 60% if a strong breakout

Question 23

Whenever there is a Reversal, it will eventually have a Pullback. This creates the _________________ set-up.

Answer 23

Cup and Handle
For a bottom, the reversal is the cup, Pullback is the handle.
It’s also a Higher Low Major Trend reversal

Question 24

Example of Upside Down Cup and handle

Answer 24

Question 25

Example of Breakout above a bull flag is reversal of a small bear trend

Answer 25

Bull Flag is a small bear trend. | Here's another way to look at Cup and handle

Question 26

Bear Flag is small Bull Trend

Answer 26

What is more likely here? Will this pullback lead to a bull trend, or is it simply a pullback to a breakout

Question 27

Beginner wants small risk. Sees reversals everywhere. Doesn't wait for trendline break or selling pressure.

Answer 27

When a wedge like this has three consecutive bull bar closing on their highs, the odds are high that you are going to get at least a second leg up. If the bear bars in the pullback closed on their lows, then maybe this would be the end of the move. But with the big tails below the bars, and the bear body being small, the odds are any reversal attempt will lead to a bear flag and lead to at least one more leg up.

Question 28

For a Trend reversal/Bottom, you need buying pressure. You can get that from two very big trend bars closing on their high as in photo. or 10 smaller bars.

Answer 28

A Minor Reversal can provide Buying Pressure that leads to a Major Reversal

Question 29

Buying Pressure takes time to build.

Answer 29

2-4 average sized bull bars is not enough Buying Pressure to reverse a Bear Trend. If not enough Buying Pressure, sideways is more likely than up. Most likely get a Minor Reversal and Bear Flag or Trading range, not MTR

Question 30

If a Reversal Lacks Pressure, and _____________ reversal is likely

Answer 30

Minor. If not enough Selling Pressure, sideways is more likely than down. Minor reversal and bull flag or TR, not MTR

Question 31

One sign of Selling Pressure is a significant break below the Bull Trend line

Answer 31

In the example, it came from small bars, but they are many. In this example, traders look for a failure in the area of the old high, and then a MTR. Usually the selling pressure comes in the form of a Trading Range. Then bears can form enough selling pressure for a bear trend.

Question 32

Define Nested Pattern:

Answer 32

A pattern that is a smaller pattern in the final leg within a larger pattern of the same type. It is usually in the final leg of the bigger pattern. In example, it's a smaller wedge within a larger wedge. A smaller pattern is a big pattern on a smaller time frame. For example, a 1 min chart. So it's two or more different time frames trying to do the same thing. Higher Profitability of a profitable trade.

Question 33

Here is an example of several layers of Nesting

Answer 33

When there are many ways to draw the same pattern, then trying to reverse at the same price on many time frames, many computers will see the same thing. If a large number of computers are buying, there is a good chance a reversal will come.

Question 34

The minimum objective of a reversal is TBTL = Ten Bars, Two Legs in the opposite direction

Question 35

When Al is trading, he looks at the highest time frame that has the pattern.

Question 36

Since reversals require some type of test, most are double tops or double bottoms.

Question 37

Double Top or Bottom are rarely perfect

Question 38

Expect two legs up from a reversal from the bottom, or one leg from the higher low (2nd leg)

Answer 38

Question 39

Reversal Down: If Higher High, then expect Lower High and 2nd leg Down.

Question 40

Most Reversal Patterns: Involve trading Ranges (He said these are all trading ranges)