What is a reversals-based trading system?

December 6, 2022

A reversals-based trading system is a type of trading strategy that is based on the idea of identifying and trading against the prevailing trend in a market. The goal of this strategy is to profit from a change in the trend, or a “reversal,” by buying or selling when the trend is about to change direction.

A reversals-based trading system typically involves identifying the current trend in a market and then using various technical analysis tools to identify potential reversals. These tools might include moving averages, oscillators, and other indicators that are designed to predict changes in the direction of the trend.

Once a potential reversal has been identified, the trader will typically make a trade based on the expected change in the trend. For example, if the trend is currently upwards and the trader sees signs of a potential reversal to the downside, they might sell the asset in anticipation of the trend changing direction.

Reversals-based trading systems can be useful for traders who are looking to capitalise on short-term changes in the direction of a market. However, like any other trading strategy, they are not foolproof and can produce false signals. It is important for traders to use them in combination with other analysis tools and to carefully monitor their trades.

“If there were ironclad rules, we would all be following them.” – Josh Brown

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