Reversal Trading Written Strategy

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The Reversal Trading Strategy

The Reversal Trading Strategy is for trading stocks that are at intraday extremes of over bought or oversold.

 

Stocks to consider:

Stocks hitting either New Highs or New Lows
Avoid stocks where the entire sector is selling off (oil, bios, etc)

 

Chart Patterns:

MUST have at least 5-10 candles in a row
MUST be riding the Bollinger Bands
MUST be at least 40 cents above the 9ema otherwise can’t justify 20 cent stop.

 

A Doji outside the Bollinger Bands is preferred for an entry candle
9ema must be at least 40 cents away otherwise can’t justify 20 cent stop.

 

Technical Indicators:

RSI below 10 or above 90 is preferred 20/80 is acceptable
Position must be at low of day or high of day, not an intraday pull back.

 

Red Flags

A stock needs to reverse quickly vs flag near the highs/lows.
Consolidation along the highs/lows is not good for a reversal
How to Buy

  • Buy the first 5min candle to make a new high
  • Buy the first 1min candle to make a new high if you are confident, typically 1min is too choppy.

 

Stop Price

  • Always stop down 20 cents for typical position sizes, if small size stop at high or low
  • If they don’t immediately pop, bail out. Look for immediate reversal

 

How to Sell

  • Hold a partial position with stop at Break Even, these stocks sometimes trend for the rest of the day.
    1. Adjust stop to -50 cents when you are up more than 50 cents. Keep adjusting a 40-50 cent stop or stop a little bit above support/resistance level. Try to hold partial as long as possible.
  • Sell half when you’re up 40 cents (2:1 p/l ratio)
  • If they don’t immediately pop, bail out. Look for immediate reversal

 

Position Sizing

  • Using a 20 cent stop I’m risking not more than $1k/trade.   Max initial size of 5k.
  • Use 2k as base position size, double if it’s strong to 4k, triple to 6k if really good.

 

Statistics

  • Success rate (lower success rate, higher p/l ratio) (target 60%)
  • Profit Loss Ratio target is 2:1 (higher profit loss ratio)
  • Average Trades per Day:
  • Average Winning Day Profit:
  • Average Losing Day Loss:
  • Anticipated Profit over the course of 1 month:
  • Anticipated Profit over the course of 1 month if double position size: