Reversal Strategy

• Trend Exhaustion
  A reversal can form when momentum slows and structure shows lower highs in an uptrend or higher lows in a downtrend.
• Support and Resistance Levels
  Price reactions at major support/resistance often precede reversals. Look for rejection wicks, failed breaks, or closes back inside.
• Technical Indicators
  Use RSI, MACD or Stochastics for overbought/oversold context and momentum shifts that support a reversal idea.
• Candlestick Patterns
  Hammers, dojis, engulfing patterns and pin bars near key levels can signal turning points—confirm with structure.
• Divergence
  Bullish divergence (price lower lows, indicator higher lows) or bearish divergence (price higher highs, indicator lower highs) can foreshadow reversals.

• Identify the Trend
  Start with a clear prevailing trend on higher timeframes; reversals are more reliable after extended moves.
• Watch for Reversal Signals
  Monitor exhaustion near key zones, indicator extremes, and reversal candles that align with market context.
• Wait for Confirmation
  Use breaks/retests of levels, consecutive closes, or confirmed divergence before entering against the prior trend.
• Set Entry and Exit Points
  Plan entries around retests of broken structure. Define profit targets via nearby structure or measured moves.
• Implement Risk Management
  Place stop-losses beyond invalidation (above resistance for shorts, below support for longs) and size positions accordingly.

A market rallies into a major resistance after weeks of ascent. RSI prints overbought and MACD shows bearish divergence. A bearish engulfing candle forms at resistance.

A short entry is taken after confirmation, with a stop just above resistance and targets at prior structure lows. If price follows through, the reversal leg captures the rotation down.