There is little point in learning patterns if you don’t know when to hit the button. In the chart below, I have marked the long and short entries in the accepted reversal formations:
Of course, you need to remember that this is not an exact science. The entry point is more a feeling comprised of many facets tied, among other things, to the general market direction, the trend’s strength, the stock’s behavior, and a great number of additional factors we will learn about later. At the moment you need to press the button, you will need to assess several factors that may cause you to press early or late, relative to what you see and sense.
As you note in the chart, in most cases, I have tried to precede the entry point even before the point where the classic pattern actualizes. When I see a reversal being structured right before my eyes, I try to keep focused on the thought, “What is the probability that the pattern will reach completion?” If I answer “90%,” then I'll press the button even before the pattern is fully developed. When I decide to press at this early stage, I base my decision on a lot of experience, but your current status is not the same as mine. My suggestion to the novice trader is to wait until a clear reversal develops. Only later will you acquire the “artistic” component in trading.
The entry points shown on this chart are slightly before the final development of the pattern, but I do think that you can already begin to implement them as shown.
Learning the Art of the Trade
One of the greatest advantages of the online trading room where I trade daily with hundreds of other traders is that I can be heard in real time executing my early entries. If you hear me applying this strategy 50 times, it’s highly probable that on the 51st, you'll be able to do it yourself.
Note that so far, we have learned when to enter, but not when to exit. In a later chapter discussing trade methods, reversals will be discussed further, and we will round out information on money management – aka, when to sell.
To learn more about the stock market and to begin your own journey toward financial independence, visit Meir Barak's site Tradenet and check out his book "The Market Whisperer."
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