Successful trading is 90% waiting and 10% execution – which is the exact reason why trading is so challenging and typically leads to account blow ups. I call myself a reversal trader but what this really means is that I catch trends very early on when they are just forming and then ride those trends with the momentum well before the regular trend following trader comes in.

Most traders who claim to be reversal traders are just trying to call tops and bottoms and predict market turns well in advance. Successful reversal traders enter WAY after the top or bottom has formed. To trade reversals profitably, you have to be ok with watching your setup unfold while you are standing on the sidelines and waiting for the perfect moment to jump on it.

Step 1: Find a higher time frame level

This is the basis for all reversal trades. Zoom out to your higher time frames – usually the 4H or Daily time frame. Now draw lines at those level that really stand out and that have been the origin of previous price movements.

Both, support/resistance and supply/demand level concepts can be used to identify high impact price levels. The most important thing to keep in mind that trading those levels blindly – just with pending orders waiting at the level – has nothing to do with reversal trading and is purely predicting market moves and standing in front of an approaching train.

Often, reversals will happen in mid-air and not at your chosen levels – those are low probability trades and you shouldn’t start trying to get into such reversals.

Step 2: Higher time frame reversal signal

Once price comes to your level, being patient is of great importance. Often, you won’t get a clear signal and price will just take off without you – learn to accept that. Your method won’t be able to catch all moves; that’s what trading rules are for: filtering out the majority of price movements and only exposing yourself to high probability setups.

Typical higher time frame reversal signals are momentum divergences on your RSI or MACD and a spike through the outer Bollinger Bands® . Completed Fibonacci sequences also add confluence to your trade.

Still, this is not a signal and you still have to wait a bit more. Those higher time frames reversal signals typically occur at market tops and bottoms where many amateur traders enter trades way too early without an edge. We wait until the reversal has already moved in our favor.

Step 3: Lower time frame entry timing – find the broken market structure

Not entering prematurely after you have identified the higher time frame signal and before the lower time frame entry trigger is given is the hardest part of successful reversal trading. You could probably enter earlier on some trades, but you’d significantly reduce your winrate and then run into emotional problems with your trading.

On the lower time frame, you have to wait for the confirmed reversal entry based on market micro structures. Typically, we look for a reversal pattern based on the analysis on highs and lows. If you are waiting for a short trade after a market top, you wait to see lower highs and confirmed lower lows. Trendline breaks and support/resistance breaks are the typical entry triggers here.

Step 4: Staying in the trade and exiting the trade

When it comes to staying in the trade we rely on the Bollinger Bands®s exclusively. As long as price stays between the middle and the outer Bands, the reversal is still valid. Even a spike through the middle Bollinger Bands® is not an exit signal – only a closethat violates the middle Bollinger Bands® is a trade exits.

To get consistent results, it’s important to make consistent trade decisions. If you use the 1H time frame to time your trade entry, you should stay on the 1H time frame to make trade exit decisions.

Challenges of reversal trading

Emotionally, reversal trading is among the hardest trading methods. So why do I still prefer this trading method? The reason is that, although it is difficult, not every trader is born to be a trend-following trader and some traders are naturally drawn to reversal trading. At the same time, every new trend starts out as a reversal and understanding reversals helps you understand the markets in very deep way.

Here are the 4 top reasons why reversal trading is so difficult for most people:

1 – Don’t use pending orders when price is approaching your level. Don’t stand in front of an approaching train

2 – Accept to miss the first part of the reversal. No calling tops and bottoms for you anymore.

3 – Even when you see signals on the higher time frame, you have to wait for a confirmed structure break on the lower time frame – waiting is a big part of reversal trading

4 – Not all reversals lead to entries. Don’t chase a move that did not give an entry

There are different types of reversals and in our Pro Area, you will learn all of my 3 setups and a variety of re-entry signals and setups. And you will also get my best setups every Sunday: