Friday, September 2, 2011

The most recent reversal determines direction of 1PB


Everytime there is an opening reversal (OR) after a trend move (b3-b5, b6-b7), you should expect a 1PB in the direction of the latest reversal. This is because 1PB is the first pullback in a trend and when the trend reverses, the expected direction also changes.

1PB is usually reversible. This means that if your 1PB entry immediately gives a signal counter to your entry, you entered incorrectly and should probably reverse your position. For example, if you missed the inside bar reversal at b8 and took a 1PB long at b10, you should reverse short at the 1PB short on b12. This way, your 1PB entry is usually self-correcting.

2 comments:

  1. I often have a problem identifying a reversal from a pullback. In the above example, I see b6 as the OR. B7 is clearly the big move of the morning making b8-9 the 1st pullback. Next, b13-14 completes a 2-legged pullback for a A2 long which looked like a great signal to me. It only became clear to me after b21 that b8-9 was a reversal. How can I make this determination earlier? Was the strength of b9 enough to convince you that this was a reversal and not a pullback?

    Thanks Cadaver and great blog!

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  2. shaft,

    Always watch out for multiple reversals in the first hour. When the 1PB long at b10 refused to take out the hod and instead gave a 1PB short at b12, its clear that b8 was a reversal and b7 was a 1 bar false breakout.

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