More Key Tools To Identify Probably Reversals

This video is an important one because it doesn’t speak just to technical set ups it also speaks to our trader psychology. Whenever I can mix these set ups and the psychology I always really like to do that. This is a great example to use as we talk about this.

What we have here is one of our newer students who is asking a question on a trade. I want to give them a great opportunity to learn as well as everyone else with this video.

This was a discussion forum post (every member gets to post questions to me and ask me to review things for them). The question was, “Hi Rob, I have attached on trade that I have taken on April 23rd on CL after you closed the room. In my opinion, all the parameters were ok but I got stopped out with a stop at 15 ticks. Can you tell us if there is something wrong in my entry or if this just belongs to the 10% of trades that don’t go through?”

This was a great question. You can imagine, much to my surprise, what we saw. There were many different opportunities to see sell signals. I want to share this with people. As we take a look here, you’ll notice that this was the area the trade was taken long (marked on the screen at 1:43). There’s a whole host of different things that were wrong with this. First you can see this magenta, blue, magenta that is showing in the indicators. We aren’t going to talk about that particular technique this evening but to keep concise on what I want to share tonight it is really about focusing on overbought and oversold levels using a tool that I’ve shared with you. This is the stochastic indicator down below here.

What you will notice is that in this particular chart everything from the daily chart down to the two minute chart at the time that this student went long was actually on a sell. You can see this marked up on the screen at 2:28. Here’s where it all boils down to perception. You will recall that this student said that all the parameters were ok. We tend to look at the charts like this: the two and five minute chart is in an uptrend, the fifteen is starting to come around, and the hourly is spiking up here. We start thinking just about direction but we never give enough credibility to how far we have already gone.

You know, 18/20 days out of the month the market ends up pulling back. It ebbs and it flows. There are a handful of times a month that the market will push and just go and keep on going. That is the exception to the rule and a gross one at that. What we really have to do is play for the rule and not the exception. What happens is when we see a situation like this where we get dramatically overbought on all of the time frames we need to start backing off of the trade and start looking for fresh buy signals if anything. Wait for retracements to come in or wait for the market to take some of the slack out before we push on.

This was a discussion that we had in the trading room that particular morning. Lo and behold what ended up happening was that very same morning the situation presented itself in a couple of different instruments. This is always great to see. We do the training and then the exact situation arises. What you will notice here is that we ended up having the two minute, five minute, fifteen minute, hourly and the daily were all very overdone. You can see this marked up on my charts at 4:18. We were also at resistance levels.

When that happened the market ended up pulling back. This is a point where a lot of people start thinking they want to take fresh buys. Sometimes you will get signals but if you don’t give credibility to how far you’ve come then things can go wrong. In this case we were sitting there looking at R2 sitting right above so the room to grow is already limited and then you are stretched to the hilt here. That is just a recipe for major pullbacks against you. This was in the British Pound.

We then had the same situation take place in the Euro as well. You can see these charts up on my screen at 5:05. You can see that with the Euro we had the two, five, fifteen, hourly and the daily all overbought. The daily was also at a key resistance level and we were at R2 on the fifteen. With all this happening around them people start seeing a little bit of a pullback and then it started to spike back up and they want to jump into it. They see it as a fresh reset and that it is time for it to blast off to the moon. In reality, that is just one more hurrah before it comes tumbling down.

By the way, you will also see the magenta, blue, magenta on the indicators which give multiple indications for sell.

To keep it simple for everyone today with a tool that they can use. The common stochastic tool that you guys can find in your charting platforms. Take a look at this. The next time you go to enter a long trade you may have a great set up here to the long side (or to the short side) but if you’ve got your charts showing you that they are screaming sell, maybe that is the time to step away from that buy button and reconsider. At the time it may look like a great trade even though it is not.

If we are looking at the trend itself that may be the case but we need to look at how far we’ve come. See if this tool will go ahead and help you as you go forward.

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