Strategy “Psychological reversal”

Strategy “Psychological reversal”

Recommended timeframes H1

This strategy does not presuppose the use of any technical indicators on the chart. It is based on assessment of the market in terms of psychology and behavior of the group of traders. Recommended  timeframe — H1.

For example, if, moving in an uptrend, the price breaks down the previous high with a relatively high volatility (ie a growing candlestick breaks down resistance level from the previous highs, and within an hour or two, closes at the same level), we can open a sell position. It is because the traders usually place stop orders above the local highs, preparing for the market reversal.

As soon as the price breaks down resistance level — Sell-order will open. Later, take profit is placed, which is equal to the height of the breakdown, ie to the distance from the resistance level to the highs of the candlestick. (Fig.1).

Fig.1

Buy-order is placed if a trend is downward. (Fig.2). If an hourly candlestick breaks down the level of the previous high and goes back to the same level within one or two hours, it is a signal of trend correction. Buy positions can be opened from the level of the previous low, Take profit shall be equal to the height of the breakdown (the distance from the support level to the low of the candlestick).

Fig.2

It is necessary to take into consideration the importance of economic news releases, as they can reverse the market to any direction. SWAP is strictly prohibited. A serious disadvantage of this strategy is that it requires continuous monitoring of the market conditions, as well as an open position.