SHARP REVERSALS
Many times a peak (or valley) doesn't just slow down allowing you ample
time to wonder about what is going on. Sometimes a reversal just happens to
which you'll need to be able to quickly read the signs and make an appropriate
decision.
Notice the peak of this petit uptrend. There are a couple of interesting things
about this example.
First of all notice the top candle. That single candle sends you a strong signal
warning you of a potential reversal. I sometimes call candles like that as a
"Yikes!" candle. The candle should be somewhat larger than normal, and the
bigger it is the more significant it is. It would have been even more
significant if it were a red candle. Notice that it has a LONG wick (the thin
part) above it. When you see a candle like that it means that it went up quite a
distance but then the market thinks "oops – went too far" and then it pulls
back. You'll often see such a candle at the tops (or bottoms). This is one
good indication that you should now closely pay attention to what happens
next.
A minute later it dropped to our trend line (having dropped 10 pips from the
top). If you didn't already exit (as a scalper it's always a good idea to take
profit rather than letting it disappear) then as soon as it dropped below the low
of 1.2182 then for sure you would have wanted to make an exit.
It might be worth talking here about that petit down trend shown. Notice that
the series of waves downwards began loosing steam (started rounding off) as
the lows/highs only made marginally lower lows. It also broke a trendline
(not shown but you can imagine it) before it made a dramatic turn around
(something you could have been anticipating due to the above mentioned
reasons plus the fact that the larger trend was currently upwards) that led
upwards along a gorgeous uptrend (lasting 50 pips that would have been easy
to scalp all the way up).
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