A reversal is a change in the overall trend direction — a downtrend turning into an uptrend, or vice versa. Reversals can be very profitable, but they are also where many traders lose money by trying to pick tops and bottoms too early.
How to confirm a reversal
The disciplined way to trade reversals uses structure. First look for a change of character (CHoCH) — the first break against the trend. Then wait for price to build the opposite structure: for a bottom, a higher high followed by a higher low. Only once structure has genuinely flipped do you have a confirmed reversal.
Entry and stop logic
A safer entry is on the first pullback after structure flips — for example the new higher low after a bottom — with a stop below that low. This lets the market prove the turn before you commit. Reversals fail often, so keep size modest and accept that waiting for confirmation means giving up the exact low or high.
- Do not short a strong uptrend or buy a strong downtrend on hope alone.
- Require a change of character, then a flip in structure.
- Enter on the first pullback after the flip, not at the extreme.
- Keep risk small — reversal calls are wrong more often than trend trades.
Reversals are confirmed by structure, not predicted by hope — wait for the trend to break and rebuild the other way.