Today's Technical Tip - Reversals.

Cyclon · (#1 (**permalink**))

Today's Technical Tip - Reversals.
Hi all,
Anytime there is a move you think may be over and good for a bounce in the other direction this is what to watch.

You will check on the timeframe you are on and also check it again on others. What you look at is how price trend pullbacks interact with the 13 ema.

Look to see if the price has pulled back and just touched it or just crossed it by a bit and THEN set a new trend high or low. (Slicing way beyond it for the first time is a sign to get on a larger timeframe.)

If it hasn't just touched it or just crossed it by a bit and THEN set a new trend high or low the move cannot be over.

If it has then staying on that timeframe watch on the pullback for when the price CLOSES thru the 13 ema in the direction away from former trend. Once that bar's close takes place just count the bars and if the price does not reverse back toward the former trend and set a NEW trend high or low WITHIN 5 BARS it is a reversal.

How long will that reversal last? That depends on the wave pattern you have just entered on this reversal. It may be a big move or just a bounce. But it is only in the forming stage at this point and depending on how quickly one can catch a ride it should have at least the rest of this move or 'stage' and then the next 'stage'. The second stage is often best because market gets convinced.

I've heard so called experts say a reversal can be judged in 2 bars. <-- Not! They must not have traded the middle of the day in any particular session.

But now you know the real forward guard for any trend in forex... the 13 ema.

Here is a chart showing this in action:
http://www.supertradesystem.com/13ema_chart.htm

This is an excellent example. The red ma is a 13ema. This is a 10 minute chart of GBP/JPY from 3/27 thru 3/30/08.
Just to the right of the second gridline on left you have your 1st close thru the 13ema. after it goes back up thru the 13 again it sets a new high within 4 bars.
The next time it closes thru it is setting new ground in 2-3 bars.
And the next time... it doesn't.

Good trades all.
Cheers,
Cyclon

Pharaoh · (#2 (**permalink**))

Since my chart program (MT4) lacks a 10 minute timeframe, could I slap a 26 ema on a 5 minute chart and look for those new highs or lows within 8 bars?

Cyclon · (#3 (**permalink**))

Quote:

Originally Posted by Pharaoh

Since my chart program (MT4) lacks a 10 minute timeframe, could I slap a 26 ema on a 5 minute chart and look for those new highs or lows within 8 bars?

Yeah, Pharoah, and that is interesting you should ask.

( BTW - Sorry about missing your question for nearly 3 months - you're not on ignore - I forgot to subscribe to the thread ).

That question is what actually led from this basic setup into the full blown implementation of the Fibonacci Timeframe method that gives such a great signal.

Once I started down the road of making some basic adaptations for timeframes to match fibbo indicators they lit up like a pinball machine so I knew I had to take that further.

Like the nearly 5000 pips on EUR/AUD of late on one I never traded before but the signal lured me in and the setup kept me in.

Cheers,
Cyclon

8- )