Trading strategies: spotting trend reversals - YouTube

In this short video part of our series on simple trading techniques. We're going to

take a quick look at spotting trend reversals.

Hello I'm David Jones from Capital.com. This is the latest in our series of short videos looking at some

simple trading techniques, I'm really just looking at what the price sanction

is doing. We've talked about trading with trends in the past. Now of course trends

don't last forever. There comes a point where the market has been rising or

falling, falls out and starts going the other way; starts a new trend. So how can

we spot these trend reversals? It doesn't have to be rocket science and we can use

simple trend lines to do this. So rather than talking about it, I think the

easiest way is to show you on the chart. So let's take a look at a couple of

example markets. Here's the pound US dollar daily chart, which the market slid

heavily from May 2018 through to August. We had this downtrend in place - I did

actually use this as an example in one of our other trading strategy videos,

when I was talking about trading with the trend and every rally up to this

downtrend we saw the market run out of steam. So the assumption is that trends

are going to continue but of course there comes a point when things change.

Let's just walk this forwards, so we can see here, the middle of September 2018

things do change and we see the pound- U.S. dollar finally breaking out of that

downtrend, so it's at this point we can start thinking about a trend in the

opposite direction. Okay so if we take it off the lows looking at that, so now

because the trend line has broken, we're going to switch our approach from selling

into strength, to looking to buy into the dips because now the market is in an

uptrend, so any sell ups - like there's a major sell-off here, in the third week of

September, we're going to use as a buying opportunity and we're using our rising

trend line here as support. But this move here, this is our trend reversal.

Let's look at an example of an uptrend changing into a downtrend.

This is an hourly chart of the German stock market index, the DAX, during August 2018 so

each bar, each candle, represents an hour's worth of trading.

We've got a very gradual uptrend - we do have high lows, just about higher highs

and this uptrend has been going for about a week in this example. So we're

expecting any weakness back to here is a buying opportunity but what we're

talking about courses trend reversals, so let's just walk forwards.

So we have a really sharp move over a couple of hours, where it goes crashing through that

uptrend. So it's at this point we have to start thinking "well that trend isn't in

place anymore", so that's when we switch our approach from buying dips to looking

to sell into strength, assuming a new trend downwards is starting. This did end

up being an extreme example, the market did fall very heavily, but it shows how

you have to be aware of these moves when they happen, but you don't need to have

lots and lots of different indicators on your chart to identify trends and spot

opportunities when those trends might be changing. It's important to point out

these reversals don't work all the time - no nothing works all the time. There is

no hundred percent no losing trading strategy when it comes to financial

markets but it as you saw that Pound-U.S. dollar example and also the DAX

example, which was an extreme one, you know if we see these levels break - the

trend line break - it can give us a clue and a major indication that maybe

sentiment is starting to shift. We need to adjust our approach and start trading

maybe the other way, of course using sensible risk management such as stop

losses. We'll start wrapping things up there, as usual don't forget there's a

whole load of content on our YouTube channel. We look at individual markets

during the week so: currencies, indices, cryptocurrencies and look at trading

strategies and technical analysis like this. To never miss out just make sure

you're subscribed, by clicking on the subscribe button and if you click the

alarm bell notification, you get notified every time we upload a new video but for

this short introduction to spotting trend reversals we'll leave it there so

from me, David Jones, and Capital.com good luck with your trading.