How to Catch a Bullish Reversal

One of the most powerful patterns to trade are trends.  The can be quick and powerful and some can last for awhile.  But the trick is getting in at the right time.

We'll I want to go over some common ways to look for bullish reversals that you can use as your "go" signal to enter into a trade.

But lets establish some simple rules to simplify what we are looking for when finding bullish reversal.

Rules

Up trends are pretty easy to catch because the begin to create higher highs and higher lows (Why trade trending stocks).  The key for those waiting to trade an up trend is to wait after a new high is made and then a pullback.  Often the first pullback in the new trend is the best to jump into because they will have the most powerful move up.

So here is a checklist for the setup

1. There needs to be a new high
2. After a new high is made a pullback will need to happen
3. The reversal and the creation of a higher low

 

The reversal here is the key part of this equation because it is the point that we enter.  This is going to be based off of a candlestick formation.  I am going to give you 3 basics candlestick patterns to keep an eye out for.

• Bullish Piercing - piercing pattern suggests that the price is continuing to drop and then when the price opens below (bearish sign) but then the trade closes at its highs and in the middle of the previous day
• Bullish Engulfing - Engulfing is that the bear open the day lower then the bulls storm higher to close higer than the ope of the previous day
• Bullish Reversal - the reversal is that the open for the day starts higher than the close of the previous day and then proceeds to close at the highs of the day.

If any of these occur after a pullback and the criteria is met above its a good day to get in.

What about confirmation?

I have a pretty simple rule with confirmation don't wait for it.  If this is the right trade this thing will take off.  If it is not you should have mental or actual stop just below where you got in.