SHARP REVERSALS
Many times a peak (or valley) doesn’t just slow down allowing you ample
time to wonder about what is going on. Sometimes a reversal just happens to
which you’ll need to be able to quickly read the signs and make an appropriate
decision.
Notice the peak of this petit uptrend. There are a couple of interesting things
about this example.
First of all notice the top candle. That single candle sends you a strong signal
warning you of a potential reversal. I sometimes call candles like that as a
“Yikes!” candle. The candle should be somewhat larger than normal, and the
bigger it is the more significant it is. It would have been even more
significant if it were a red candle. Notice that it has a LONG wick (the thin
part) above it. When you see a candle like that it means that it went up quite a
distance but then the market thinks “oops – went too far” and then it pulls
back. You’ll often see such a candle at the tops (or bottoms). This is one
good indication that you should now closely pay attention to what happens
next.
A minute later it dropped to our trend line (having dropped 10 pips from the
top). If you didn’t already exit (as a scalper it’s always a good idea to take
profit rather than letting it disappear) then as soon as it dropped below the low
of 1.2182 then for sure you would have wanted to make an exit.
It might be worth talking here about that petit down trend shown. Notice that
the series of waves downwards began loosing steam (started rounding off) as
the lows/highs only made marginally lower lows. It also broke a trendline
(not shown but you can imagine it) before it made a dramatic turn around
(something you could have been anticipating due to the above mentioned
reasons plus the fact that the larger trend was currently upwards) that led
upwards along a gorgeous uptrend (lasting 50 pips that would have been easy
to scalp all the way up).
Notice on this chart that near 3:50 on this chart you see another “Yikes!”
candle. There are other things on this chart that are worth looking at, but all I
want to discuss here is that peak near the very top of the chart. Notice that
along this overall uptrend that there are some down (red) candles, but
generally the market quickly resumed. At that top you had a few minutes that
it kept going down (plus if you were to draw a fanned trendline you would
have seen it being broken), so you would have exited your trade (as a scalper
you want to prevent loosing as few pips as possible – had it immediately
resumed the uptrend then you could have always jumped back on if
appropriate).
Here are a few more “Yikes!” candles (just to show you). As you can see that
immediately following “Yikes!” candles you need to pay close attention to
react quickly to a likely sharp reversal. Notice on the right side of the chart
you see a pair of candles (blue then red) that formed a top. This is called (by
many traders) “Train Tracks”, and it often signals a reverse. You see a couple
of “Train Tracks” earlier in the chart too. Just after 8:00 and also around 7:35
you see what are known as “Tweezer Tops/Bottoms” (they look like train
tracks with equal length wicks on them that resemble a pair of
tweezers). These aren’t the best example of them but am just showing you
them here to be able to recognize them as they sometimes happen to
potentially signal a sharp reversal to watch for. Train Tracks and Tweezer
Tops/Bottoms, though they have slightly different meanings (which I’ll
explain in a future eBook that I’ll write about “Forex Candles”), but I would
simply lump them together here along with “Yikes!” candles to have similar
significances.
Here is one more chart with several “Yikes!” along with some explanations
about them.
First of all notice the consolidation on most of the left side of the chart. This
happened because the market was waiting for some fundamental
announcements (shown FA calendar under the chart) to be released. The
range of that consolidation was about 10 pips which was certainly scalpable
(you’ll learn more about that later in this eBook). The first vertical line is at
8:30 EST (12:30 GMT) when some fundamentals were released. Notice the
following minute (after the FA was released) you got a down spike making a
big “Yikes!” candle, then the market quickly returned. That is a common
phenomena in the market immediately after an FA (I called this “Whiplash” in
my previous eBook “Explosive Profits”). After the confusion from the FA
settled the market continued upwards for some nice scalpable opportunities
(or you could have surfed it as learned in “Forex Surfing” which is still a type
of “scalp”). At the top of that upwards petit trend notice you see something
very interesting (which is why I decided to show you this chart). You see a
clumping of multiple “Yikes!” candles! This means that the bulls & the bears
were having a big fight over which direction the market should go in, and
what it means to you is to have your mouse ready to click to exit the trade
(broken steep trendline and sharp reversal). Notice the second vertical line
was set for 10:00 EST (14:00 GMT) for when another FA was released. It
resulted in a scalpable opportunity lasting just a few minutes, ending at the
“Yikes!”. I just wanted to show you the above chart to supplement your
understanding of “Yikes!” particularly around Fundamental Announcements
(this topic will be revisited later in this eBook), and to show you that
interesting clumping of “Yikes!” candles at that top.
In general, a reversal can happen quickly and with little warning. Pay
attention to trendline breaks (particularly fanned trendlines), “Yikes!” candles
(and the related Tweezers & Tracks), and especially when prices either drop
sharply or keep dropping for several candles. It is better to exit with whatever
profits you can rather than crossing your fingers for a hopeful continuation
(meanwhile loosing more of your profits). I strongly URGE you to go look at
some charts to see many other examples to condition your eyes to recognize
how to spot a sharp reversal.
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