We talked a little bit about market selection in the past but it’s important that we are clear about this very important topic. Most traders make the mistake that they want to trade all the markets all the time. The best traders have a deep understanding when their method works best and when to stay out of the markets. Please watch the video first and then read the bullet points and the case studies below for more information.
▪ As reversal traders, we need a strong trending market before we can start looking for a reversal
▪ Trend waves with 1 trend wave are called V-tops and V-bottoms and should be avoided
▪ We don’t trade range markets on our execution timeframes
▪ We need at least 2 trend waves in such a trend before a high probability reversal can happen
▪ Trend with very deep retracement waves should be avoided – there are some exceptions as we will learn later
Case studies – good vs bad markets
Keep in mind, as reversal traders we look for strong trends with multiple trend waves and a good trending structure. Here are a few examples of good vs. bad market. Don’t fully understand all the principles yet. In a later module, I will lay out my whole screening process for you step by step and we I will walk you through my watchlist process.
Bad market – range and V-bottom
Here are two classic example of bad market structures. First, price trades in a large range without any trend action. Then, when price leaves the range, price drops like a strong in one single line. Such V-bottoms have to be avoided because they don’t offer high probability reversal setups.
Bad market – Very deep trend waves Although we have a trend here, we need to stay away from such a trend because the retracements are too deep and not easy to trade.
7 Parts [500Mb]
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