Let me confess something up front. I used to think I could outsmart the market.
I read candlesticks like horoscopes. Every wick? A sign. Every RSI divergence? A message from the trading gods. I bought dips like they were on clearance at Target. And I’ll admit—I sometimes got lucky.
But more often?
I was catching falling knives with no gloves.
🔁 The Pain of Always Being “Early”
If you’ve ever thought, “This stock has to reverse here,” only to watch it sink for another week, this is for you.
I didn’t need more indicators. I needed clarity.
So I simplified everything. I stopped trying to predict, and started reacting—with a framework so simple it almost felt wrong.
📊 The Reversal Method That Actually Works (No Magic, Just Logic)
Here’s the system I now use. It’s not sexy, but it’s consistent—and it finally made me profitable.
✅ Step 1: Define the Trend First
If you don’t know what trend you're reversing from, you're not trading a reversal—you're guessing.
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Use a 20 or 50 EMA (your pick).
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Price above EMA = uptrend. Below = downtrend.
Simple rule: Only look for reversals against the current trend once exhaustion shows.
✅ Step 2: Wait for the Trap (Let Others Get Wrecked First)
Here’s the gold: I wait for a failed breakout or breakdown. This is where the dumb money jumps in—and gets steamrolled.
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In an uptrend? Wait for a failed higher high (price pops then drops).
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In a downtrend? Wait for a fake lower low (price dips then rips).
This is the “trap zone.” You’ll often see big wicks, volume spikes, and sudden reversals right after.
✅ Step 3: Confirm With RSI or MACD Divergence
I’m not married to indicators anymore—but I still use them for confirmation. Just one.
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If price makes a new high, but RSI or MACD doesn’t? That’s bearish divergence.
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New low but momentum doesn’t follow? Bullish divergence.
Think of it like your second opinion before taking the trade.
✅ Step 4: Enter on the Retest or Break of Structure
This is where most people mess up—they jump in too fast. Not me.
I wait for the trap, then the first pullback or structure break, then enter.
This gives me two things:
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Clear risk level (usually just above/below the trap zone)
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Confirmation the reversal is real, not noise
🔐 Bonus Rule: Small Position, Big Patience
Reversals aren’t trend trades. They’re messy. I size smaller, take partials early, and never assume “this one will run.” When it does, great. But if it doesn’t, I’m not bleeding out.
💬 The Down-to-Earth Truth:
Most people lose money trying to predict reversals because they’re trading their hopes, not the setup.
This method gave me discipline. It reminded me that the market doesn’t owe me a bounce. But it will show its hand—if you’re patient enough to wait.
My equity curve finally started going up when my ego went down.
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