My experience in taking a Reversal Bets in Markets

Hi Readers,

In the professional journey of 14 years as a Technical Analyst in Stock, Commodities, and Currency markets, one thing I have learned is “The Best Bets are always when you are in the Trade ahead of the crowd” but picking the right level is the biggest challenge. The challenge to find how landed me to learn Harmonics and Wyckoff Analysis – the renowned Technical Analysis pattern.

What is Harmonic Pattern or Wyckoff Pattern?

Harmonic patterns are a reversal in nature and are calculated using Fibonacci retracements and projections. Analyzing and trading on these patterns for a decade has helped me a lot in my professional and trading career.

Wyckoff pattern was introduced by Richard Wyckoff on the basis of accumulation and distribution considering the entry and exits by Institutions and some large players.

Is it the only pattern that helps you to take a reversal bet?

My answer is NO. I would rather term it as a tool to plot the right levels of price reversal but there is something more beyond the price pattern. I am coaching on the Harmonic and Wyckoff patterns for 5 years and have also been a speaker at various Technical Analysis events and people are always confused at first glance about Harmonics or Wyckoff. We are in the world of Artificial Intelligence (AI) and people want everything to be coded or screeners where it can pop up the stock or commodity where patterns are formed. Even if they have patterns handy, the biggest hurdle that traders face is the psychology to take a bet when prices are trading at 52 weeks or all-time high or low. There is always a fear of catching the falling knife or short the rising star and those who dare to take a bet may have a chance for rewards – To win you need to be in a game. Traders fear for the first 3-6 months or 4-5 consecutive profitable bets on taking the reversal trade as they are not trained to do so. 95% of the traders are trend followers or develop their systems on breakouts or moving averages. That is not the problem of trading but it is how we are trained to follow the trends. When you have a series of profitable trades, the conviction increases, and when you incur losses – it decreases and hunts for new methods. I would suggest analyzing and spending time on what went wrong rather than jumping to new methods.

Building conviction on your system is another problem that most traders face. If the pattern suggests buying and someone on Whatsapp or Twitter posts a negative setup, the level of conviction for them decreases. Sometimes it is best to stay away from such noise. Equally, it is important to learn something new and you will find such things on social media – so decide what to learn and what to unlearn or avoid.

Every successful analyst I have met has practiced one or two patterns and mastered them and thankfully I met someone at an early stage of my career who focused on my core. Learning horizontally will help to know how big the lake is but learning vertically will help you to know how deep it is so that when you are ready to deep dive in it. Whichever trading or investing patterns you follow, deep dive into it to learn, try and evolve because none of the patterns is a failure, it works in some market scenarios,s and sometimes it doesn’t. Also, keep learning new patterns, try to merge them with your core, and find the best out of it which will help you grow. Be patient to build conviction on the time you invested in learning the pattern.

For me, a reversal bet works well and has my conviction on it. There are also disadvantages when you are trading reversals – you tend to move the trend but the advantage is you are early into the game giving great risk to rewards. The late entrants don’t get such kind of benefit. So analyze your core before choosing the best out of continuation and reversal. As Paul Tudor Jones says “the meat is in catching the tops and bottoms rather than entering in the middle of the trend.” Also managing the risk plays an important role when it comes to trading.

Take one pattern > deep dive into it > master it & build conviction > trade as a pro > Manage your risk > Importantly Share your knowledge

Happy Trading & Learning.

Do share your experience or in case you have any doubts, feel free to mail me at brijeshhbhatia@live.com.