Step 4: Take Action – Take Your Trend Reversal Trade
So let’s recap:
1: We’ve found a trend.
2 :We’ve decided what indicator or chart pattern we’re going to use to tell us that the trend might be coming to an end.
3: Our specific Trend Reversal Event (that we’ve decided upon in advance) has occurred.
Now it’s time.
Your signal that you have been waiting for has happened – now it is time to spring into action.
Traders often spend hours thinking about what they are going to do when x,y or z event happens. Yet when what they have been waiting for actually happens, they freeze. They start second-guessing themselves, introducing new indicators into the mix, looking at different timeframes – basically talking themselves out of taking action.
If you are already in the market, this is a signal that you may have to close a position.
If you are waiting for a trade to set up, now it might be time to open a position (make sure to set your stop-loss first).
Have some confidence in your analysis – if you have got to this stage – there’s a really good chance you’re onto something. Trust your analysis – trust the chart – and take action.
A Word About Failed Patterns
Here is one thing you are going to have to come to terms with as a trader. Patterns will fail. They will fail all the time. A 50% failure rate would not be unheard of at all. And if your pattern only works 50% of the time, you should be prepared to go on a losing streak of at least 15 trades in a row.
Many traders baulk at this statistic - but that’s the wrong reaction. Because if your average winning trade is 100 pips, your average losing trade is 80 pips, and 50% of your trades are winners - then you are making great returns.
We talk about this a lot more in the Price Action Video Course.
I bet I know exactly what you’re thinking at this point.
You’re saying:
So let’s recap:
1: We’ve found a trend.
2 :We’ve decided what indicator or chart pattern we’re going to use to tell us that the trend might be coming to an end.
3: Our specific Trend Reversal Event (that we’ve decided upon in advance) has occurred.
Now it’s time.
Your signal that you have been waiting for has happened – now it is time to spring into action.
Traders often spend hours thinking about what they are going to do when x,y or z event happens. Yet when what they have been waiting for actually happens, they freeze. They start second-guessing themselves, introducing new indicators into the mix, looking at different timeframes – basically talking themselves out of taking action.
If you are already in the market, this is a signal that you may have to close a position.
If you are waiting for a trade to set up, now it might be time to open a position (make sure to set your stop-loss first).
Have some confidence in your analysis – if you have got to this stage – there’s a really good chance you’re onto something. Trust your analysis – trust the chart – and take action.
A Word About Failed Patterns
Here is one thing you are going to have to come to terms with as a trader. Patterns will fail. They will fail all the time. A 50% failure rate would not be unheard of at all. And if your pattern only works 50% of the time, you should be prepared to go on a losing streak of at least 15 trades in a row.
Many traders baulk at this statistic - but that’s the wrong reaction. Because if your average winning trade is 100 pips, your average losing trade is 80 pips, and 50% of your trades are winners - then you are making great returns.
We talk about this a lot more in the Price Action Video Course.
I bet I know exactly what you’re thinking at this point.
You’re saying:
- I know what you’re thinking – but what if a head and shoulders pattern has triggered but price is still above the moving average?
- What about when the trend has reversed on the daily timeframe but is still different on the weekly timeframe?
