Recognition trend reversal signals

Huzefa Hamid - Senior Analyst of NomuraBank

Today we look Trade, in which we can see as Pin Bar, and Engulfing Setup, give us a very precise moment of entrance in reversing the trend.

Trade in reversing the trend can be a source of some of the most profitable trades, but often it is the hardest area to entry due to two reasons.
- The current trend can just continue.
- You may be right, imminent reversal, but if your timing is not good, could have been stopped.

The following example shows that with the right criteria, you can safely log in reversing the trend. This is a daily chart of the AUD / USD:

Before highlighted Pin Bar observed a sharp decline in the price. Pin Bar-is seen to be the first sign that the trend may be over. However, by itself, I do not think it is sufficient to confirm a trend reversal because Pin Bar-seen to not close to previous support or Fibonacci level. May simply have been a correction before the downward trend to continue.

However, the next 2 candles shape model "bull" Engulfing Setup. Recall, Engulfing Setup means when the body of the first plug is "absorbed" in the opposite direction of the next candle and at the same time and the two plugs have short shades, in comparison to their bodies (i.e., the body should be held for at least 2 / 3 of the length of the candle).

Now with these two "bullish" signal - Pin Bar, followed by Engulfing Setup, can I secure enough to open position, causing at least 1: 1 risk-vazrashtaemost for this Trade. Trade reached the goal in the next two candles (+ 125 pips).

There are several interesting points about my decision to go with only 1: 1 risk-vazrashtaemost. Next resistance is a few hundred pips and coefficient of 1: 2 or 1: 3 is easily accessible. The reason I came out at 1: 1 is that I find the daily charts long-term, compared to my other transactions; so to stand in Trade 1 or 2 days is a relatively long time for me.

Therefore, this decision was emotionally rather than strategic. What I had to do was to close part of its position at the first target profit of 1: 1 to move stop-loss-a territory of the pros and continue with their trades until the next resistance.

In summary:
- Reversing the trend, though difficult trading can be traded safely with the right criteria for entrance.
- Pin Bar-and seen to Engulfing Setup-can be seen to reinforce each other, especially when there are no previous support or resistance and to clarify the validity of trades.
- You can exit early long-term charts, because you're not used to sitting in Trade for a long time. Trade should be based on strategic decisions instead of emotional.

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