The Smart Way to Trade Reversals
How to spot real turning points — not just dead-cat bounces.
"Not every dip is a buying opportunity. Smart traders wait for signs of strength — not just weakness fading."
Why Reversals Are Tempting — and Dangerous
Everyone wants to buy the bottom. But most failed trades come from trying to catch falling knives.
A real reversal doesn’t just stop going down — it starts going up with intent.
Traders often:
Buy too early
Ignore trend structure
Fight heavy volume selloffs
The result? They get trapped in bounces that fail — instead of participating in trends that last.
How to Spot a Potential Reversal Setup
Look for:
Reclaiming a major support/resistance level (especially after a breakdown or shakeout)
Higher low after capitulation — shows buyers stepping in with conviction
Volume confirmation — increasing on the bounce, not just the dip
Divergence on momentum indicators — RSI, MACD, etc. showing strength before price does
Stabilization near a known level — prior breakout zone, VWAP, or moving average
What to Avoid in Reversal Trading
Entering before any strength shows up
Buying into massive red candles just because they “look oversold”
Holding without a plan if the reversal doesn’t confirm
Assuming the first green day is the bottom
📚 Analogy: A real reversal is like a car that’s not just slowing down — it’s turned around and picked up speed.
Entry Tactics for Reversals
Wait for confirmation — reclaim of a prior support level, or break of a short-term trendline
Use smaller size initially — and scale in as confirmation builds
Place stops just below the new higher low — protect against fakeouts
Don’t forget the big picture — is the broader trend still down? That limits the bounce
Bonus: Look for reversals in strong companies with a fundamental reason to bounce — not just technical setups.
Quote to Remember
"You don’t need to buy the bottom. You need to buy the turn."
Read Next:
How to Track Earnings Season the Smart Way (Coming Soon)
Building Discipline Through Watchlists (Coming Soon)
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