What hidden patterns can you use to identify and trade
reversals before your competition sees them? Successful short-term traders get in the
reversal door early and allow the herd to trigger sharp price movement. Familiar
trend-change formations, such as the Head and Shoulders and Double
Bottoms, take so long to develop that many profitable entries pass before they
finally signal an impending break to the waiting crowd.
First Rise/First Failure provides traders
with an early method to identify reversals following new highs or lows in any time frame. FR/FF
is the first 100% retracement of a dynamic trend move within your time frame of interest.
In order for any trend to continue, price movement must hold (at least) a 62% retracement,
measured from the starting point of the last thrust that pushed price to the new high or
low. From this pullback, trend must base and test its extension (high or low extreme)
before it can break out to further continuation highs or lows.
100% retracement violates the major price direction and
terminates the trend it corrects. Its completion also provides significant bounce
reversal support/resistance, where swing trades can be initiated with low risk.
>From this point, the continuation trend may reestablish itself in the next larger
time frame by a new break through the 38% (prior 62%) support/resistance and continued
push past the (now) 62% retracement, toward a test at the high/low extension.
FR/FF bounce reversals represent superb
entry points when the 100% violation coincides with a 38% or 62% retracement of the next
higher dynamic time frame. However, risk:reward requires careful measurement here, as the
trade may develop more slowly than expected. In other words, a successful position must be
held through expected congestion at the 38%-62% zone before it can access a profitable
retest at the double top/double bottom extreme.
Allow minor testing violations for all major Fibonacci
retracement points before taking positions. Specialists and Market Makers are well aware
of these hidden turning points and conduct stop-gunning exercises to take out volume just
beyond the breaks. And watch out for trend relativity errors. Bull and bear
markets exist simultaneously through different time frames, from 1-min to monthly price
charts. First Rise/First Failure can only be traded in the time frame in
which the retracement occurs unless cross-verification supports positions
through other trends.