Trend reversals are probably one of the most difficult types of strategies to execute. Often, traders must time the actual reversal accurately in order to get the most bang for their buck. This is easier said than done. One of my senior trader friends once told me that trading trend reversals is like “catching a falling knife”. It requires a lot of skill and if you miss it, you would be cutting yourself. No wonder many traders who are new to trend reversal trading bleed their trading accounts to death.
Although trend reversal trading is very difficult, it could also be very rewarding. It often allows traders to grow their accounts exponentially because of the high reward-risk ratios that most trend reversal strategies could afford. This is because trend reversal setups assume that a trader is taking the trade at the end of one trend and the start of another. Traders who can catch the next trend and ride if from start to finish are the ones who stand to gain most profit.
Gann Reversal Forex Trading Strategy is a trend reversal strategy that allows traders to gain much from high yielding trades. Although trend reversal strategies are inherently high risk due, it is also inherently a high reward strategy.
Gann Hi Lo Activator Bars
The Gann Hi Lo Activator Bars is a short-term trend following technical indicator. It helps traders identify short-term trend and momentum direction by overlaying bars on the candlesticks. The bars change colors depending on the direction of the trend.
In this setup blue Gann Hi Lo Activator Bars indicate a bullish trend. On the other hand, red bars indicate a bearish trend.
The Gann Hi Lo Activator Bars work best as a short-term trend reversal signal. This is because the indicator tends to be very accurate in identifying short-term trend reversals. However, the characteristics of the corresponding candlesticks should also be considered. Candles which represent strong momentum tend to be very accurate. Reversals that come from a congestion point also tend to signify a strong momentum reversal. At times, the signals provided by this indicator could also lead to longer-term trends.
Relative Strength Index
The Relative Strength Index (RSI) is probably one of the more popular technical indicators used by professional and retail traders. Although it is a very basic indicator, it is still very effective if used right.
The RSI is an oscillating indicator which could help traders identify trend and momentum direction. It is also capable of identifying overbought or oversold market conditions, which are prime for a reversal.
The RSI is an oscillator that plots a line in a range between zero to 100. As a trend indicator, a line that crosses above 50 indicates a possible bullish trend reversal, while a line that crosses below 50 is indicative of a possible bearish trend reversal.
As a mean reversal indicator, a line that breaches above 70 indicates an overbought market condition, while a line that drops below 30 indicates an oversold market condition. Both scenarios are prime conditions for a possible trend reversal.
Trading Strategy
This trading strategy is a simple trading strategy that provides trend reversal entry signals using the confluence of the Gann Hi Lo Activator Bars and the RSI indicator.
On the RSI indicator, trend reversals will be considered as a possible entry if the RSI line crosses over 50.
The Gann Hi Lo Activator Bars should follow suit. The bars should change color indicating the possible trend reversal.
The reversal signals coming from both indicators should be closely aligned. This usually happens when there is momentum behind the reversal.
Price action should also support the reversal. This is primarily based on the characteristics of the most recent candlesticks, whether it is showing momentum or congestion. Another indication would be a breakdown of a diagonal support or resistance, which usually occurs during the early stages of a trend reversal.
Indicators:
- Gann HiLo activator bars
- Lb: 24
- Relative Strength Index
- Period: 28
Preferred Time Frames: 30-minutes, 1-hour and 4-hour charts
Currency Pairs: major and minor pairs
Trading Sessions: Tokyo, London and New York sessions
Buy Trade Setup
Entry
- The Gann Hi Lo Activator Bars should change to blue.
- The RSI line should cross above 50.
- Enter a buy order on the confluence of these conditions.
Stop Loss
- Set the stop loss on the fractal below the entry candle.
Exit
- Close the trade as soon as the Gann Hi Lo Activator Bars change to red.
- Close the trade as soon as the RSI line crosses below 50.
Sell Trade Setup
Entry
- The Gann Hi Lo Activator Bars should change to red.
- The RSI line should cross below 50.
- Enter a sell order on the confluence of these conditions.
Stop Loss
- Set the stop loss on the fractal above the entry candle.
Exit
- Close the trade as soon as the Gann Hi Lo Activator Bars change to blue.
- Close the trade as soon as the RSI line crosses above 50.
Conclusion
This trading strategy is an excellent trading strategy to use for trend reversal setups. It allows traders to gain so much pips relative to the risk placed on the stop loss, allowing traders to gain higher yields.
Although this strategy uses high probability technical indicators, it would still be best to use the strategy as a supplement to the actual trend reversal price action setups. These are mainly breakouts or breakdowns of a diagonal support or resistance. It could also be based on high probability trend reversal candlestick patterns. It could also be a combination of both. Trading this strategy this way allows for a higher probability trade entry with lesser risk.
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