Reversal Strategy for WSDT

As in any competition, it is important to choose the right strategy. The most popular day trading strategies are reversal, break-in/breakout, momentum, pivot points, scalping. Today we will be discussing the “reversal” strategy.

What is Reversal Strategy?

The reversal strategy is a strategy commonly used by more seasoned traders since most traders need to identify sudden uptrends and downtrends to make it work effectively for them.

The reversal strategy can be implemented individually or in conjunction with another trading strategy for it to work effectively. The only downside is that beginners may misapply this strategy due to their ability to interpret an uptrend or downtrend. The ability to use this trading strategy depends largely on the mentorship or training that a trader has received before implementing it in their trades.

How is the reversal strategy used in day trading?

How a reversal strategy is employed is largely up to the trader utilizing it. This is largely due to the fact that most traders must have the training and instinct to interpret when to deploy this strategy. 

We will provide some basic points for traders to use to recognize a reversal and when it needs to be used.

Reversal Strategy – Uptrends

• Defined as a series of periodic higher highs and higher lows.
• Eventual end marked by absolute high price value.
• Reversal begins at the absolute high and consists of price actions trending downward. 
• Identified by the establishment of periodic lower highs and lower lows.

Reversal Strategy – Downtrends

• Downtrends are identified by a set of periodic lower highs and lower lows. 
• The endpoint is a low price value. 
• Reversal begins from the absolute bottom and is identified by upward trending price action. 
• It begins a series of periodic higher highs and higher lows.

Is the reversal strategy popular among WSDT mentors?

The “reversal” strategy has been used by some traders to some degree or other. Some traders like to use it as mirrors trading on the bull and bear markets. However, some detractors have recently said that reversals are a risky way to enter the markets.

Pablo Martinez Garcia from I&CB, one of the mentors taking part in WSDT, states:

“The strategy I like least is Reversal because it is usually accompanied by Martingale (probability theory) and I think it is the riskiest of all to lose a high percentage of your capital”.

However, Jose from I&CB, who also taking part in WSDT, likes the reversal strategy. He states that “The reversal is a strategy that does not require momentum or market strength and the market lacks these conditions 95% of the time”.

WSDT mentor Ali Biggz also thinks that the reversal strategy may be a good choice especially when with momentum and pivot points strategies.

Is reversal a good strategy for WSDT?

Reversal strategies are inherently risky due to the potential for capital loss. One other major reason for reversal strategies to be considered is that modern trading takes place at lightning speed and some traders aren’t adept at making decisions quick enough to stem capital losses that may occur as a result of this.

For those who can make effective decisive decisions at lightning speed and have good risk discipline, this may be your trading style for WSDT.

Final thoughts

There is no one-size-fits-all strategy in trading and this must be remembered. Most traders have in their own words learned from their own mistakes. In doing so they have managed to find what works or does not work for them. Some of the traders that have used this method of trading are still wary of its use in trading.

Traders that decide to deploy this strategy must be disciplined, have a good risk tolerance, and decisive. Admittedly, although using this strategy during WSDT may let you reap profits, it can also lead you to ruin if you are not adept at interpreting the market in real-time.