(See chart) How do you protect yourself from these fake reversals?

[kingsmasher1]

Hi Guys,
How do you protect yourself from these fake reversals?
The above chart is from Gail April 11th date, April-27-Future.

See the circled candle (7th one from beginning) which is a bullish engulfing with good volume as well. Someone who goes short in the previous candle will possibly exit. But after the fake bullish engulfing finishes, the trend continues downwards further, and you hit your head, as why you exited.

How to know, if this reversal is fake or a genuine one, so as to hold the position.

 

[vsatrader1]

Hi Guys,
How do you protect yourself from these fake reversals?
The above chart is from Gail April 11th date, April-27-Future.

See the circled candle (7th one from beginning) which is a bullish engulfing with good volume as well. Someone who goes short in the previous candle will possibly exit. But after the fake bullish engulfing finishes, the trend continues downwards further, and you hit your head, as why you exited.

How to know, if this reversal is fake or a genuine one, so as to hold the position.

this is not a bullish engulfing pattern. its a bullish pattern for sure. wht you can do is keep your sl above the highest high of the 2 bars making the pattern.

 

[cloudTrader]

Hi Guys,
How do you protect yourself from these fake reversals?
The above chart is from Gail April 11th date, April-27-Future.

See the circled candle (7th one from beginning) which is a bullish engulfing with good volume as well. Someone who goes short in the previous candle will possibly exit. But after the fake bullish engulfing finishes, the trend continues downwards further, and you hit your head, as why you exited.

How to know, if this reversal is fake or a genuine one, so as to hold the position.

Candlestick signals are always to be read in context of the overall existing trend. If the overall trend is bearish then such signals will have little or no effect on the price direction. In contrast if the overall trend is bullish then bearish candlestick signals will be overlooked as they would hardly be able to bring significant impact.

 

[kingsmasher1]

Candlestick signals are always to be read in context of the overall existing trend. If the overall trend is bearish then such signals will have little or no effect on the price direction. In contrast if the overall trend is bullish then bearish candlestick signals will be overlooked as they would hardly be able to bring significant impact.

When you say overall trend, is it daily trend you meant?
But seeing a bullish strong candle at a downward trend, it might also be the case, that the downward trend is over (reached support, and it is looking to go high now? like as it happens after 3 candles)

On a daily trend, Gail is going in an uptrend though, so price might not come down much as i thought, and it reversed after another 3 candles, continuing the upward journey. But still, if it is intraday, we need to plunge in, and go short at these opportunities although the daily trend is upwards.

this is not a bullish engulfing pattern. its a bullish pattern for sure. wht you can do is keep your sl above the highest high of the 2 bars making the pattern.

Having the stoploss 2 candles high we can do, but in case of futures, since it is a lot of 2k (for Gail), so 1Rs fluctuation would mean, 2k loss, so will need a lot of nerve to have it that high . But unfortunately seems like there is no other way out, as the market does fluctuate.

 

[biyasc]

When you say overall trend, is it daily trend you meant?
But seeing a bullish strong candle at a downward trend, it might also be the case, that the downward trend is over (reached support, and it is looking to go high now? like as it happens after 3 candles)

On a daily trend, Gail is going in an uptrend though, so price might not come down much as i thought, and it reversed after another 3 candles, continuing the upward journey. But still, if it is intraday, we need to plunge in, and go short at these opportunities although the daily trend is upwards.



Having the stoploss 2 candles high we can do, but in case of futures, since it is a lot of 2k (for Gail), so 1Rs fluctuation would mean, 2k loss, so will need a lot of nerve to have it that high . But unfortunately seems like there is no other way out, as the market does fluctuate.

that's pure textbook theory . if you really want to take the trade then buy above the high of that candle.

 

[kingsmasher1]

that's pure textbook theory . if you really want to take the trade then buy above the high of that candle.

But I was actually short in this case, the strong bullish would have exited my short position.

 

[biyasc]

But I was actually short in this case, the strong bullish would have exited my short position.

in that use modify sl above the high of that bar.

 

[kingsmasher1]

in that use modify sl above the high of that bar.

Yes, but it would have exited the trade, although it is a fake reversal. I was looking for a way, if we can identify such fake reversals (especially one which occurs with volume like in above case), and accordingly stay in trade, and trail the stoploss higher so that it does not get hit.

If you see in above pic, after the bullish candle was gone, the trend continued further down.

 

[cloudTrader]

When you say overall trend, is it daily trend you meant?
But seeing a bullish strong candle at a downward trend, it might also be the case, that the downward trend is over (reached support, and it is looking to go high now? like as it happens after 3 candles)

On a daily trend, Gail is going in an uptrend though, so price might not come down much as i thought, and it reversed after another 3 candles, continuing the upward journey. But still, if it is intraday, we need to plunge in, and go short at these opportunities although the daily trend is upwards.

The overall trend depends on what Time Frame you are taking the trade. So if suppose you are taking the trade on a 3 minute chart then you will have to see the trend going on in a 15 minute chart and an hourly chart. You must have seen that in a daily uptrend days there are days when we see RED candles. So on an intraday basis these are downtrend days inspite of the Uptrend going on.

So doing your intraday trade you will have to base your trading time frame on the analytical time frame trend. This happens because of the Fractal Nature of markets.

In a short time frame of 1 minute there can be an uptrend and in its analytical time frame say a 5 minute chart there can be a downtrend. All in all a trader has to resort to multiple time frame analysis while placing a trade.

A short Time Frame is always influenced by the bigger time frames. We can put it like this way.. in a simple form.... though more factors are taken into consideration while doing a multi time frame analysis.

We can say this as Fractal Execution..

For 1 Minute a 5 minute Chart

For 3 or 5 Minute a 15 minute chart

For 15 minute a 60 minute chart

For 60 minute a 4 hour time frame or daily chart

For Daily time frame a Weekly Chart

The fractal analysis can be very well understood by looking at a chart without knowing its time frame. You won't be able to classify on what time frame you are seeing the chart, all time frames will look identical.

 

[kingsmasher1]

The overall trend depends on what Time Frame you are taking the trade. So if suppose you are taking the trade on a 3 minute chart then you will have to see the trend going on in a 15 minute chart and an hourly chart. You must have seen that in a daily uptrend days there are days when we see RED candles. So on an intraday basis these are downtrend days inspite of the Uptrend going on.

So doing your intraday trade you will have to base your trading time frame on the analytical time frame trend. This happens because of the Fractal Nature of markets.

In a short time frame of 1 minute there can be an uptrend and in its analytical time frame say a 5 minute chart there can be a downtrend. All in all a trader has to resort to multiple time frame analysis while placing a trade.

A short Time Frame is always influenced by the bigger time frames. We can put it like this way.. in a simple form.... though more factors are taken into consideration while doing a multi time frame analysis.

We can say this as Fractal Execution..

For 1 Minute a 5 minute Chart

For 3 or 5 Minute a 15 minute chart

For 15 minute a 60 minute chart

For 60 minute a 4 hour time frame or daily chart

For Daily time frame a Weekly Chart

The fractal analysis can be very well understood by looking at a chart without knowing its time frame. You won't be able to classify on what time frame you are seeing the chart, all time frames will look identical.

Thanks a lot, that was a very well thought out and nice explanation.