How to Trade a Indices Trend Reversal
Stock Indices Trend Reversal Trading Strategy
After stock indices price has moved in a particular direction for an extended period of time within a indices trend it reaches a point where it stops moving within the trend. When this happens we say that the trend-line has been broken and this is interpreted as a indices trend reversal signal.
Since the trend line is the point of support or resistance and this point of support or resistance has been broken after a indices trend-line break - we then expect stock indices price to move towards the opposite direction and this is interpreted as a indices trend reversal signal.
When this happens indices traders will close the open stock index orders which they had bought or sold. This is known as taking profit.
Up Indices trend Stock Indices Trading Reversal
When stock indices price breaks-out below the upwards trend-line (support) stock indices trading market will then move downwards
Upwards Indices Trend-Line Break - How to Identify a Indices Trend Reversal Signal
This indices trend reversal trading signal is considered to be complete with formation of a lower high of the indices price. This also provides a trading opportunity to sell once the trend line is broken -indices trading reversal signal.
Down Indices trend Stock Indices Trading Reversal
When stock indices price breaks above downward line (resistance) the stock indices price will then move up
Downwards Indices Trend Line Break -How to Identify a Indices Trend Reversal Signal
This indices trend reversal stock indices trading signal is considered to be confirmed with formation of higher low. This stock indices reversal setup also provides a trading opportunity to open a buy indices trade once the trend line is broken -indices trend line reversal indices signal.
NB: Sometimes when stock indices price breaks its indices trend it might first of all consolidate before moving in the opposite direction. Either way it is always good to take profit when the stock indices trading market indices trend reverses.
To trade this indices trading reversal setup as a trader once you open a new indices trade in direction of the trend reversal the stock indices price should immediately move in that direction, in a indices price breakout manner. This means that the stock indices prices should immediately move in that direction without much of a resistance.
If on the other hand the stock indices prices do not immediately move in direction of the stock indices price breakout then it is best to close out the indices trade because it means that the indices trend is still holding.
Another tip is to wait for the trend line to be broken & for the stock indices trading market to close above or below it so as to confirm this indices trend reversal signal.
What happens is that most traders open trades waiting for a indices trading reversal even before the indices trend is broken, only for the stock indices price to touch this indices trend line & for the current market indices trend direction to hold and indices to continue with the current market trend.
Therefore, when trading this indices trading reversal setup it is best to wait until the stock indices price breakout has been confirmed by stock indices price closing above or below trendline, depending on direction of the market.
- Upwards Market Indices Trend Direction Reversal - this reversal stock indices signal is confirmed once the stock indices price closes below this upward trendline, this should be the correct time to open a sell indices trade, so as to avoid a indices trading whipsaw.
- Downwards Market Indices Trend Direction Reversal - this reversal stock indices signal is confirmed once the stock indices price closes above the downwards indices trendline, this should be the correct time to open a buy indices trade, so as to avoid a indices trading whipsaw.
