As the introduction to reversals, this note mainly explains what a reversal is and the difference between small reversals and large reversals.
1. What is a reversal?
A broad definition of reversal refers to changes in market cycles, such as transitioning from a breakout to a channel and then to a consolidation range. However, Abu considers the transformation from one trend to another as a reversal, such as changing from an upward trend to a downward trend.
Due to market inertia, in most cases, the market will maintain trend operation, so opening any K-line chart may only show that 10% of K-lines are in reversal or transitional reversal. Therefore, reversal is a trading strategy that sacrifices win rate for profit-loss ratio, and we still try to follow the trend as much as possible when trading, as this makes it easier to make money.
2. Minor Reversals and Major Reversals
Minor Reversal
In a narrow channel, the first reversal is likely to fail, evolving into a bear flag or part of a consolidation range. This type of reversal is unlikely to mark the beginning of a reverse trend; it is more of a signal of trend continuation.
Major Reversal
There are many types of circumstances for major reversals; here are some common major reversal situations.
- Deep V Reversal
Although the probability of a direct major reversal in a narrow channel is small, it does not mean it is impossible. Once it occurs, it can be called a deep V reversal.
Taking an upward trend as an example, in a narrow upward channel, when a bearish candlestick appears, traders at the initial stage would think it is a pullback, believing that the reversal will not last long and will eventually form a bull flag, thus increasing their positions on dips. However, as the candlesticks unfold one by one, traders finally realize something is wrong. They know that the upward trend will not continue, leading to stop-loss exits, which causes further declines.
- Double Bottom/Double Top Reversal
In more cases, significant reversals do not occur directly. Bear reversals require a peak to be formed; bull reversals need a bottom to be established, typically exemplified by double bottom reversals.
Taking a bullish reversal as an example, the bears' two consecutive attempts to create a new low ended in failure, leading to a brief exit of disappointed bears. The bulls temporarily took control of the market, ushering in an upward trend (but whether this is a significant reversal depends on the subsequent trend that emerges)
- Major Reversal after Sideways Movement
A pullback is a pause in the trend, but when there are enough pullback candlesticks, especially after a sideways movement of more than 20 candlesticks, the probabilities of trend recovery and trend reversal are equal. Wait for clear signals after the market enters a breakout mode before entering again.#ETH走势分析 $ETH
