How To Trade Market Reversals Using Weekly And Daily Candles?

Catching the market reversals correctly is what made fortunes for legendary trades like Richard Dennis, Paul Tudor Jones, George Soros and others. You will be told not to waste time catching tops and bottoms. There is indeed some truth in it. What you should do is not try catching tops/bottoms. But instead let the market reverse and on first retracement enter in the direction of the new trend. This way you will be able to catch a major portion of the new trend. We will be using Weekly and Daily charts for finding the market direction and then use H4 chart for making the entry. Most of the time we will have a fixed 100 pip stop loss for pairs like EURUSD, NZDUSD, USDCAD, AUDUSD and USDJPY. For pairs like GBPUSD, GBPJPY, GBPNZD, GBPCAD etc a take profit target of 150 pips will be a good idea.

Market Reversal Strategy Infographic

Weekly candle is a very important candle. The high and low made by a weekly candle can be important support and resistance levels for the next week. Every Sunday you should take a deep look at the weekly charts of different pairs and try it figure out what is going to happen next week. Watch this video on how to trade on daily and weekly timeframe. The infographic below explains our strategy!

Market Reversal Strategy

As we said in the first paragraph of this post, we are not hunting for the exact tops/bottoms. We are trading a market reversal using weekly and daily candle once it has been confirmed. Just as the above infographic explains, first we look at last week’s candle. The high/low of last week’s weekly candle are important support/resistance levels for us. Now we wait for the daily candle to close on Monday. If it is bullish and is formed near the low of last week’s candle, we have a buy signal. If Monday is a bearish candle and formed near the high of last week’s candle high, we have a sell signal. Watch the video below in which Dale Woods a price action trader in true spirit explains how he catches the market reversals using weekly levels.

Once you have looked at the weekly chart, you should take a look at daily chart.  As you have read in the above infographic, we are going to use an inside bar for the entry. Monday Daily candle will give us the direction. If Monday Daily Candle is bullish and formed near the low of last week Weekly Candle, it is a buy signal. On the other had if Monday Daily Candle is bearish and formed near high of last week Weekly Candle, we have a sell signal. FOr entry we shift to H4 chart and look for an Inside Bar. Inside bar is an important breakout signal. Watch these Inside Bar Breakout video tutorials if you don’t know what are Inside Bars.Now let’s use this market reversal strategy in live trading.

Market Reversal Strategy Live Example

Take a look at the following screenshot which is EURUSD Weekly Chart. The last weekly candle has been highlighted. It is a bullish candle. Take a look a the High/Low made by last week’s weekly candle.

Market Reversal Strategy

Now as mentioned in the infographic, we will look at the daily chart on Tuesday when the Monday Daily Candle has closed. The Monday Daily Candle is the one just touching the red arrow. It is bullish and you can see it has been formed close to the low of last week’s candle (highlighted area). We have a buy signal with us.

Market Reversal Strategy

Now Take a look at EURUSD H4 chart. The inside bar has been formed just above the red arrow. Our entry is 1.11584 and the stop loss is below the Inside Bar pattern low which is 1.11500. Just imagine we got a stop loss which is 8 pips. On EURUSD this strategy gives very low risk trades. Our take profit is 100 pips.

Market Reversal Strategy

The big highlighted area is that of the last week’s candle so that you can see on the H4 chart what was the low and high for last weeks’ candle. Did you see we were able to get a very low risk entry. Stop loss was below 10 pips and take profit was 100 pips. Reward/Risk ratio for this trade is 10:1 which is excellent. 100 pip take profit is safe margin for pairs like EURUSD, NZDUSD, AUDUSD etc. For pairs like GBPUSD, GBPJPY, GBPNZD etc we can use 150 pips as our take profit target. Market can move 200-300 pips but we play it safe. Just scan other pair charts and you will find 2-5 very low risk trade setups on them as well. Make 5 such trades per week. Even if one of the stop loss gets hit, you don’t lose much and you can easily make 400-500 pips with this simple price action based strategy. Did you observe that we are not using any indicators for this strategy. We are trading solely based on price action and making entries with low risk of less than 20 pips most of the time.

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