Managing Reversals?

[kiravon]

Something I've never really bothered with but is
making it's presence felt

I had a great trade on AUDUSD H1 confluent HTF.
it was doing really well until it shot up through
Gator.

I would definitely not open a trade in this situation
where AO is divergent, I wouldn't oppose the
divergence but neither would I trade into Purple
so I would stay out!

but I'm already in, so my question is what to do?

I think two half positions would be useful here - take
some off table at cross of Green and see if the other
half re continues the down move

I think it will.

I would like to hear what others would do about
Divergence?

Thanks

Divergence.jpg

and as we can see, the Divergence was a force to be
reckoned with!

It would seem madness to ever ignore Divergence
but close the trade early as soon as it appears?

Any views much appreciated as I need to
incorporate some Divergence management into
my upcoming Trading Plan

Divergence result.jpg

Best Answer
It is always frustrating when a trade that has gone well into
profit suddenly reverses. Divergence is simply an indication
that such a reversal may be imminent.

The enquirer has probably already answered his own question,
ideally two half lot size positions should be opened, one at
around 1:1 RR with the other half allowed to run on.

An exit strategy/ies should already be stipulated in the
Trading Plan,eg -in case of momentum this may be trailing
bars, otherwise a cross of Green or AIMS is an ideal
mechanical exit which will take much of the stress out
of these potentially stressful situations.

Alternatively, if the newly formed AO Divergence is
confluent with a Reversal candlestick pattern SAR
should be considered as a reversal in trend is
extremely likely.

[kiravon]

Things that go bump in the night!

I actually always regretted starting this thread as it
was a very naive question

There is no answer to the question, except maybe...

Someone with many years experience of learning to
read the charts will certainly manage reversals more
skillfully then a newbie who can't believe his 'bad luck'
as the market turns inexplicably against him

So it is a very long, gradual learning curve

A quick fix solution is always sought but rarely found

I think the original question above was almost begging to
know if there was an indicator that could alert you to when
price was about to reverse

Now that is naive!

but the trade below that I took last night is relevant

and no, there is no such magic indicator per se

nevertheless

I opened a long position on AUDUSD with a 5 pip SL and TP at
an optimistic 6R just above TZ1

But I couldn't stay up all night to baby sit the trade

So I eventually was stopped out for -5 pips or -1%.

( actually I was only risking 0.5% but that's not really relevant here )

But for the purposes of illustration let us suppose I was able to manage
the trade live in person - would I have done better?

It's a very hypothetical question as things look very different
and very obvious in hindsight

but let us say I would have opted to close at the cross back up
over Green and AIMS which would have been formed at this point.

That would have probably been about the best solution normally
and I would have come out of the trade BE which would have
been quite good

but note the QQE ADV in this instance.

If I had exited when I saw the RSI line cross back up over the
signal line I would have made +7 pips or almost +1.5%

and this happens a lot! QQE ADV is really best not ignored!

However, in reality would I have acted on this indicator at the time
or would my heart have been set on the 6R and would that little
hint of green just be viewed as a blip before price continued down
to hit my splendid target

Frankly I fear the latter

QQE ADV isn't infallible and neither is any analysis done in hindsight.

What actually happened in reality is that the price did just about
make it down to that TZ1 level but not before retracing to 50% Fib
and stopping my tight 5 pip SL in the process

I could have safeguarded myself against that retracement by placing
Stop just above prior AIMS which was not 5 pips but 15 pips away.

I would then have won the trade when it hit TZ1 but not for 6R but
for the much reduced 2R!

So its sort of roundabouts and swings

So to answer the original question, How do you manage reversals?

Well when I'm actually awake I trade momentum where possible
and so might likely be trailing bars which I find
to be the most efficient and cost effective

That wouldn't have applied to the above trade though

You can opt for a cross back of AIMS or Green which might
allow more latitude for the trade to manouver before hitting
the target, or you might respond to something like QQE ADV
which will spare you a lot of unnecessary rents but I don't
doubt will conversely take you out prematurely of a lot
of potentially profitable trades

So we are back to the original question, there is no easy
quick fix answer, - half the time we might call it right and the
other half we won't.

Over time we will become more attuned to the market and
may call it a little better

but certainly not when we're asleep

17.jpg

[Dave]

In my opinion, a reversal is not a reversal to be managed. It is a trade that is going into loss and should be closed. Most here would in the least trail AIMS levels as an exit strategy, or I know Ray closes if price comes back to the alligator. You need to define your exit and write it in your trading plan and stick to it. It may be something like:
1. Trail stop loss behind AIMS levels;
2. If price and eWave have diverged, close trade if price closes above green line.
No trade will continue indefinitely so you need to clearly define when to exit a trade that is in loss but also when to exit a trade with profit.
Hope that helps!

[baldeagle]

Thank you for starting this thread. I hope you get a lot of input from others, Immy, Ray Sam, etc., (Thanks Dave) about how to deal with this frustrating issue. I have recently gone to higher TF trading because one trade I opened according to all the rules, reversed on me while I was indisposed and lost 2% of my account before I could get back to my chart! If we can get a consensus of a reliable method to deal with this in the best way possible then at least we can take the psychological aspect out of the loss.

Ed

[baldeagle]

Sorry you are not getting any input on your question. I was thinking, after a lousy week of reversals, losing 5 per cent of my account, that maybe it is the entry conditions that might filter out reversals. I know we are dealing with Chaos but can we make it less painful? Well, hope springs eternal! Any comments from our seasoned traders?

Ed

[kiravon]

Hello Ed
You touch on a good point. I've found higher time frames
far more reliable personally.

Whilst it is absolutely true that an M1 chart can seem identical
to a D1 in hindsight when it is static, but on the D1 or even H1
you do actually have the luxury of being able to visit the restroom
with no ill effects, - well you may have some ill effects but not of the
Forex variety.

Honestly, this thread has proved a bit embarrassing, just a kneejerk
reaction to the frustration I felt at the time, - and that you have obviously
also experienced.

The even better 'best answer' is simply keep practicing! particularly
on the higher time frames, just taking a little out of the market between
AIMS and prior AIMS as illustrated on my main thread.

Obviously I still get rents but they don't bother me and reversals per see
are definitely not an issue now.

Of course everyone has to find their own particular trading style and what
works for me won't necessarily work for everyone else

[Dave]

Don't be embarrassed, it's all small steps on a long journey!

[baldeagle]

Thanks for the info. I will check out your secret on your journal pages as I just had a reversal on the US/CAD H1 this morning that wiped out my profits. The AO on the higher TF's doesn't seem responsive enough to signal abrupt changes like this.

Ed

[baldeagle]

I have also been playing around with the QQE ADV and have been looking at changing it from 1,8,3 to 1,8,2 to see if it is more responsive. But, I am naive and the right answer is getting a intuitive feel for the market which at times I seem to have and other times NOT! Practice, practice, practice.

BTW, I am too old to feel embarrassed about exchanging ideas, even naive ones, or learning from others. When I was teaching I felt my students taught each other the subject matter better than I did.

Ed