How to Identify Reversal Points

Picking tops and bottoms of market moves is a skill traders desire to perfect. Perfection is the goal, but picking absolute lows and highs is not realistic. However, we can hone this skill through observation and practice. Here are a few exercises I learned over many years of observation.

  • Make it a habit to review history in charts after an extreme high or low has been made. Markets frequently reverse after retesting a previous low/high that was made in the first hour trading.
  • Extremes tend to be made near old consolidation areas. These congestion zones often comprise three to five days of severe overlap in price. Small daily candle bodies are common during consolidation phases. Reversals often occur when price revisits a previous high-volume zone and trends often commence at such areas.
  • Gaps in price from open to close are more common with stocks and ETFs. When these gaps are retraced, they often provide support/resistance
  • My favorite and most reliable pattern for defining support/resistance is deemed an acceleration point. I prefer to search for them using 30-minute candles (see chart below).

The idea is to find levels where the market shoots higher or lower at above average speed (length). The cart below illustrates this phenomenon. It is a candle with no overlap in the ensuing candle and is quite common at the onset of trends. These acceleration points frequently provide support/resistance when retested.

John Seguin, Market Taker Mentoring

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