Reversal Signals
Sniper level precision on trend changes
Which Way From Here?
Now for Trading Alpha's famous Reversal Bars! These bars can show potential reversals from both the upside or downside meaning they can give you insight into when an uptrend rally may be reversing to the downside, or when a downtrend might be reversing back to the upside. Bearish Reversal Bars from the upside-down are Yellow & labeled with an "R". While Bullish Reversals from the downside-up are Turquoise & labeled with an "R". The most important thing to understand when it comes to Reversal Bars is the need for Confirmation for these signals to be considered "actionable" or have high probability.
What is confirmation?
Confirmations are what we use to validate our all our setups on both our Alpha Trend Suite and HTF/LTF Suite. When setups are confirmed and validated they have a higher probability of working out in your favor because of the confluence in signals. There are two types of confirmations we use with our Trading Alpha setups.
1) Using our indicators in our Confirmation Suite
Our Alpha Thrust, & Alpha RSI can be used to confirm Reversal Signals & are both located in our Confirmation Suite. We go over examples of these indicator confirmations in our Confirmation Suite category of this Alpha Docs Guide.
Note that our Confirmation Suite is included in our Alpha Bundles. The Confirmation Suite includes, Alpha Thrust, Alpha RSI, & our Support/Resistance indicator.
2) Using one or two bar confirmations with price action
Our definition here of Confirmation when using price action is when one of the following two bars AFTER the Reversal Bar closes BEYOND THE REVERSAL BARS WICK in the direction of the signal. If you have a Bullish Turquoise Reversal bar print, then the confirmation would need one of the following two bars to close ABOVE the top wick. If you have a Yellow Bearish Reversal bar print, then the confirmation would need the following bar to close BELOW the bottom wick. A bars size can also be taken into consideration of confirmation/sign of strength. Below is a table explanation of confirmations followed by chart examples of successful confirmed bullish and bearish Reversal bars.
Type
Bullish or Bearish
Confirmation type needed
Turquoise "R" Reversal Bar
BULLISH
Close ABOVE signal bar wick
Yellow "R" Reversal Bar
BEARISH
Close BELOW signal bar wick
We also have a Youtube Video Tutorial where we go over many examples using our confirmation technique. Just note that there are no examples of two bar confirms in the video. But many examples of one bar confirms:
Bullish Reversal
Below is an example of a downtrend in progress until a Turquoise Reversal bar is printed which ends up changing the trend. Note that the next bar after the reversal bar does indeed close ABOVE THE WICK of the Turquoise bar, giving us the actionable confirmation we need.
Bearish Reversal
Below is an example of a uptrend in progress until a Yellow Reversal bar is printed which ends up changing the trend. Note that the next bar does indeed give us Confirmation by closing BELOW THE WICK of the Yellow Reversal Bar.
Two Bar Confirmation
An exception we make on confirmation is for a 2 bar confirmation. This carries the exact same principals as the 1 bar confirmation that we just went over. The only difference is accepting the 2nd bar AFTER THE REVERSAL bar as the confirmation. Below you can see our sequence playing out, going from a green bar uptrend, printing a reversal bar, & then changing trend direction heading into a red bar downtrend.
One bar confirmations are our go to. Two Bar Confirmations are valid as well. So make sure you watch both the next two bars after the Reversal Signal prints.
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