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The Importance of Reversal Signals
by Steve Crooks

August 19, 2005

The reversal signal is the first thing you need to be looking for when planning a new trade. As their name implies; they signal a reversal in a market trend. A great many fortunes have made by mastering the skills to spot a trend reversal. It is the stock in trade, excuse the pun, of the Day Trader.

You, as a Day Trader will make your trade as the market hits a high or low and the signals indicate a reversal. You may want to see this as having occurred previously if you want to jump on to a continuing trend or you may want to wait for a new trend reversal to occur before placing your trade. In any case your trades will be placed as close to a high or low as possible and profits taken as you climb or fall to new lows or highs.

Take a look at any candlestick chart and look for large cahnges in trend. You are looking for high peaks and deep troughs to start with. It makes it easier to see the reversals. Now, try to identify the signals that would have warned you of this impending change. A good charting system that has the added bonus of being completely free, is BigCharts. The charts are clear and easy to read. Make sure you choose "Candlesticks" as the chart style option in the setup menu on the left of the interactive chart section.

If you can master this technique then you can gain runs of many points in each direction that will accumulate a very nice profit. Trade regularly like this and your income will explode.

The important thing here is to learn to identify the reversal signals. Just a handful will give you the necessary tools to make your trading decisions. Combine those with the selected western indicators and you will be a force to be reckoned with!

But, remember; its not just your signal strategy that accounts for your success. In fact its only around 10% of the skills you need to be successful. The other 90% is discipline and your frame of mind. See my other articles for more about this aspect of trading.

Steve Crooks is the webmaster of CTWorkshops and of
The Candlestick Trading Workshops. He is also the author
of two books on Japanese Candlesticks and Online Digital
Options. Steve runs various workshops on the subject of
Trading including 1-2-1 sessions and group workshops of
15 persons or less. He is also an active Trader himself.

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For more Trading articles see: The Fact File