Reversal Strategy

TradingPub Admin | July 7, 2014

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If you have ever traded the forex market, or any market at all, you will know that there is no such thing as a perfect strategy and that you will have some bad trades among your good ones. With that said, each trader's goal is to have fewer of the bad days and more of the good ones, so there is a great looking equity curve in the end of each trading period. This highly accurate Reversal Strategy, discussed in further detail below, compliments the  Double Trend Trap Method so well that this goal is very attainable. The Reversal Strategy incorporates those three trading tools:

  1. Negative risk to reward ratio
  2. Adding to open positions
  3. Hedging

Retails traders avoid using tools like that because there is a great chance for error and those are fairly involved and complicated. This is when automation comes in handy. The Reversal Strategy is available on three forex currency pairs- EUR/USD, GBP/CHF and AUD/NZD and it trades these pairs in a completely automated fashion. It is dynamically programmed to use different guidelines for each of the currencies. Thought the criteria for each pair is different, the logic of the strategy is consistent among all pairs. The program looks for market conditions that are over-extended and determines high probability areas to target for the correction. This type of strategy also combines some critical concepts that have proven to maximize profitability and limit draw-down significantly, such as the ones mentioned above. The three main advantages of the Reversal strategy involved, as mentioned above, utilizing some trading tools, that are not used often in retail trading. For example, a non-negative Risk to Return ratio is optimal when trading, but with this particular strategy in order to reduce draw downs a negative RR ratio had been put in place and tested over the course of almost two years with a  proven result. Further, adding to open positions can be dangerous both due to the risk of making an error in the calculation and also due to the increased potential for a bigger loss. But Reversal Strategy utilized this technique. The strategy does not involve consistently adding and managing each trade or position, such as martingale or anything like that, but occasionally adds to a position to increase profit using some predetermined values and conditions. This is why automation works great here, because some rules are repetitive and apply at all times. The strategy also incorporates hedging which is not common, but with the use of this tool some draw downs are reduced and thus profitability increases over the long-term. Those three principals are not often used in manual trading, but when using automated trading can certainly be incorporated with less risk. These concepts are powerful and add significantly to the potential return, if used the correct way. Here is how it works. In the example, shown in the table below, we see that the general trend is going down and it looks like the market could be preparing for a reversal. However, it does not reverse, but it continues its run down. The way the Reversal Strategy will work here is to add another position and when the market starts its move up, this second position will offset the original loss. (See both tables below) 07.07.14 Winners Edge 1 07.07.14 Winners Edge 2 This strategy is going with the rhythm of the market, so as soon as the first two trades are executed then we can add another one, this time a short, as it appears that the market will be reversing, as seen in the image above. As the market continues its natural move we are now in a position, that no matter which direction it goes, there is a possibility to make a successful trade, as seen in the image below. This is one of the advantages of using hedging, as done in this case. Patience will be required, but when you  hedge you can afford to wait and see which way will the market breakout. Then no matter what happens that you will be covered. There is limited draw-down and consistent return. 07.07.14 Winners Edge 3 This strategy is great when combined with the Double Trap Trend Strategy, discussed in a prior article. While the Double Trap Trend Strategy looks for a trend continuation and attempts to ride those trends, the reversal strategy is stalking over-extended markets and looks to enter in the opposite direction. In this case, no matter if the market continues to trend or reverses, a trader can be in position to make money. The idea is fairly simple, but can only really work with two great strategies that can complement each other. The Double Trend Trap Strategy and The Reversal Strategy were developed over a period of time which has allowed for great back-testing , adjustments and improvements making then fairly good strategies. When applied those two can smooth out the equity curve and boost the net profits dramatically. Sign up now and you will get access to 2 months of both strategies for the price of one. The package will include:

  • A full Double Trend Trap Membership
  • Double Trend Trap Strategy
  • Double Trend Trap Tool Set
  • Trading Room Access
  • Updates and Enhancements
  • Plus the fully automated Reversal Strategy for $97



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