How to Trade Extreme

Reversals
Presented By:
Aiman

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 Outline
1. Introduction
1. What’s a trend?
2. Type of Reversals: A)Parabolic Reversals. B)Extreme Reversals
3. What are extreme reversals.
4. Why trade reversals.
5. Why is it difficult to catch an extreme reversal and some common mistakes.

2. Reversal Candles

3. Extreme Reversals
• General Rules
• Strategies + Examples
• What time of the day do they occur

4. Where to Find Stocks for Extreme Reversals.

5. Final Tips.

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 Introduction
1. What is a trend:

A trend is an overall direction of the stock identified by trend lines/MA’s.

-On an uptrend price action is making higher highs and higher lows. On a downtrend
it’s the other way around.

-In the market there’s nothing which is going straight up or down. There’ll always be
pullbacks and corrections. Therefore, a new low doesn’t necessarily indicate a
reversal!

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 Introduction
1. What is a trend:

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 Introduction
2. What type of reversals do we trade?

1)Parabolic or Climactic reversals

-We don’t aim for a full reversal, but if it happens it’s a bonus(Part 1)

2)Extreme Reversals

-We aim for a full reversal closer to VWAP or Below

3. What are extreme reversals?

-Extreme reversals are trend changing reversals where a stock could drop all the way
to VWAP and below.

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 Introduction

4. Why trade extreme reversals:

A)It keeps us from chasing a trending stock.
B)No need to have quick making decision.
C)Being late on an entry doesn’t mean that the R:R is already messed up
B)You could catch the whole move you missed but to the other direction

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 Introduction

5. Why is it difficult to catch an extreme reversal:

A)Every red candle seems to be a reversal.
B)The idea that every stock making a huge move >ATR is going to eventually make a reversal
C)The belief that reversals happen right after the trend is broken

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3.Extreme Reversals:

Remember!!!
-A break of the trendline/MA doesn’t necessarily mean that the trend is
done.

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3.Extreme Reversals:

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 2-Reversal Candles
1. Tweezers:
-Tweezer Top: It consists of two candlesticks, one bullish
candle, second bearish candle.

-Tweezer Bottom: It consists of two candlesticks, one bearish

candle, second bullish candle.

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2-Reversal Candles and Patterns

-Evening Star: An evening star pattern consists of three

candles:
1)Large white candlestick
2)Small-bodied candle
3)Red candle

Morning Star: A morning star pattern consists of three

candles:
1)Large red candlestick.
2)Small-bodied candle
3)White candle

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2-Reversal Candles and Patterns
-Shooting Star: Consists of small body candle and a long
upper shadow:

-Hammer: Consists of small body candle and a long lower

shadow:

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2-Reversal Candles and Patterns
-Spinning Tops/Bottoms: Consists of small-bodied candle centered between
long upper and lower wicks

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3.Extreme Reversals:

Rules:
1)Reversal candle on bigger time frames(5/15/30 minute charts)
2)New 15-minute high/low
3)Cross of the 50SMA with the 9 and 20EMA’s on the 1-minute chart
-Better to have a pullback to the 50SMA after the break of the 50SMA on the 1-minute
chart
4)Reversal pattern/strategy supporting everything mentioned above
Bonus:
-Daily level or strong MA acting as a support/resistance
-Increasing volume at the HOD/LOD
Note:
-I don’t take extreme reversals on stocks at ATH/ATL, on stocks with clear
uptrend/downtrend on the daily chart

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3.Extreme Reversal Strategies:

1)Double Top/Double bottom

2)Break of the trendline with an establishment of a new trend
3)Head and shoulders Pattern
4)Fake Breakouts
5)Consolidation above a strong horizontal MA
• Note that those strategies must be on bigger time frames(At least 5-minute
chart).

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3.Extreme Reversal Strategies:
1)Double Top/Double bottom

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3.Extreme Reversal Strategies:
1)Double Top/Double bottom

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3.Extreme Reversal Strategies:
2)Break of the trendline with an establishment of a new trend

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3.Extreme Reversal Strategies:
2)Break of the trendline with an establishment of a new trend

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3.Extreme Reversal Strategies:
3)Head and shoulders Pattern

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3.Extreme Reversal Strategies:
3)Head and shoulders Pattern

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3.Extreme Reversal Strategies:
4)Fake Breakouts

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3.Extreme Reversal Strategies:
5)Consolidation above a strong horizontal MA

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3.Extreme Reversal Strategies:
5)Consolidation above a strong horizontal MA

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3.Extreme Reversals:
• What time of the day to they occur?

• I start looking for reversals mostly after 11:00AM

• Why after 11:AM?

• At the open market is very volatile
• Stocks tend to get overextended during the first hour, sometimes making a move
>ATR.
• We need some time to confirm that the uptrend/downtrend is done.

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4. Where to Find Stocks for Extreme Reversals:

1)Stocks in play.

2)Over extended stocks against the direction of the gap or the daily trend

3)RSI extreme scanner.

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5. Final tips:
1)Be careful trying to force an extreme reversal on a stock at ATH, daily uptrend.

2)Don’t try to catch a reversal every time it breaks a trend line/MA it’s holding

3)A reversal candle on the 5, 15-minute chart alone doesn’t mean that there’ll be a
reversal happening.
4)Not every strong stock intraday/Every stock which is going against the direction of
the gap is going to reverse the same day.

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