Here is an example of a reversal pattern with the complete methodology
Think of this trade as an “If-Then”.
- Weekly charts are used for the big picture. Trend, overbought/oversold and near support and resistance levels
- Daily is the trade signal
- 4 hour is for fine tuning the trade
What does the weekly say?
Price is oversold based on the MACDBB
What does the daily say?
- We have a blue square above= Long Dynamic Zone
- We are showing a potential long trade with a pull back into the sweet spot.
- MACDBB is below 0= Trade has room to move
- Ideally, we would want price on the daily to find a bottom around .87152
- The trade would then be a buy order above .88015 with a stop below the pullback and a target of .90062
- Ideally it would then be a 2:1 trade
The “If-Then” part of this trade is:
- Price has to hold above .8715 for the risk to reward to be close to 2:1
- There needs to be a clean pullback on the daily
- Price does not stall out. It makes a clean pullback and a move back up to the entry level
If any of these things are false, skip the trade!