You know how it goes in the markets—reversals are just part of the deal. Prices always do their little dance, going up and down over time. If I ignore those reversals, I’m just asking for trouble, taking on way more risk than I signed up for. When the reversal happens, it can be tricky to tell if it’s just a temporary dip or something more serious. By the time I realize it’s actually a reversal, the price could’ve already taken a wild ride, leaving me with a big loss or my profits getting eaten away.
The whole idea behind my Reversal strategy? Simple—I buy in the direction the price is moving. This method is perfect for trading options since I can jump on those shorter timeframes and catch frequent signals. I’ve developed this strategy using three top-notch indicators: Bollinger Bands, MACD, and SMA. You can grab all these tools in the Pocket Option terminal.
Setting Up My Chart and Indicators
To make this Reversal trading strategy work, I start with a candlestick chart and focus on highly volatile assets—think USD or cryptocurrencies.
As for my indicators, I keep it straightforward:
- Use the default settings for MACD;
- Bollinger Bands? I set it to period 22 and deviation 2;
- For SMA, I go with period 10.
I’m advised to use a 15-minute timeframe for this strategy. Start there, then adjust as needed.
Putting the Reversal Strategy to Work
First, I need to wait for a solid price move—like, when all the candles are moving in the same direction. I’m looking for about 4-5 of these guys to line up. But I have two important questions: is the trend going to keep going, and when’s my signal to get in on an option?
I trade in bursts after those price pullbacks. To spot it on my chart, I switch from the 15-minute to a 5-minute timeframe. And let’s be honest—false signals are everywhere. Sometimes a reversal bounces off an indicator or price action, only to have the price go right back to the previous trend.
Snagging Contracts with the Reversal Strategy
First, I fire up my trading terminal and keep an eye out for that impulse movement on the 15-minute timeframe. Once I spot several candles moving up, I switch gears to a lower timeframe (5 minutes).
- CALL when the candles are moving above the Bollinger Bands heading up. The price has bounced off MA (10) moving upwards, and the MACD chart is above the zero line;
- PUT when the candles are below the Bollinger Bands moving down. The price has bounced off MA (10) heading downwards, and the MACD chart is below the zero line.
The expiration period is set to match three bars on that lower timeframe.
So, what’s a reversal? It’s when the price trend of an asset completely flips. A pullback? That’s just a quick hiccup in the trend that doesn’t significantly change the overall vibe. In an uptrend, I’m noting those higher swing highs and swing lows. Pullbacks create those higher lows. A downtrend doesn’t change until the price moves to a lower low on the timeframe I’m observing. There’s always a bunch of potential pullbacks sneaking in before it actually reverses, and I have to play it smart to exit positions that are in the trend before the reversal hits, or bail once I sense it starting to unfold.
The Pocket Option platform offers a comprehensive range of tools, giving traders everything we need to build a solid trading strategy.
