As everyone knows, stocks don't just go straight up or straight down. Whether they're uptrending or downtrending, stocks have highs and lows along the way. Being able to predict these reversal points can give a trader or investor a significant advantage in the market. Luckily for us, there are actually many different things we can analyze that can help us spot and profit from these stock market reversals!

The first reversal indicator that, as a day trader, I see on a daily basis is called a doji. Now, to fully understand a doji it's important that you know the ins and outs of candlesticks in general first. With that being said, if you haven't already I recommend checking out my blog post on candlesticks. However, if you already know about things like "real bodies," "upper wicks," and "lower wicks" you're ready to learn about spotting stock reversals with doji candles!

Doji: A doji candle forms when the opening and closing price of a candle are virtually the same. Candlesticks can tell us a lot about the supply and demand for the stock that we're analyzing. For example, when we see multiple green candlestick in a row that are all closing near the high of their candles, we know that there are plenty of buyers (demand) for that stock.

On the other side of the spectrum, doji candles can show us when there is a shift in a stock's supply and demand at the end of a trend in either direction. We can use these doji candlesticks to exit out of any current positions we may be in to lock in our profits. We can can also use them enter into new positions to profit from the stock's trend reversal.

There are multiple doji candlesticks that all can indicate reversals in the market. However, some are more accurate for predicting downside reversals at the top of an uptrend and others are more accurate for predicting upside reversals at the bottom of a downtrend. For example, the Dragonfly Doji is most commonly spotted at the bottom of a move, often before the stock bounces or reverses up. The Gravestone Doji is most commonly spotted at top of a move, often before the stock pulls back or reverses down.

The next thing many successful traders and investors use to spot reversal in the stock market are called false breakouts.

False Breakouts: A short-term, temporary move above a level of resistance or below a level of support. False breakouts often cause inexperienced traders to panic buy at the top of a move or panic sell at the bottom of a move. Without going too much into specifics, one of the strategies I teach in the Master the Market courses explains exactly how to avoid buying or selling at false breakout levels and, instead, teaches the most effective way to trade breakouts!

However, regardless of your strategy you can use false breakout to identify potential reversals! When you see stocks starting to have false breakouts like you can see in the examples below, you should know that more often than not a reversal is coming. This means that if you see false breakouts above resistance after move up, many times a reversal to the downside will follow and you should begin selling.

(False breakout above resistance)

If you see false breakouts below support after a move down, many times a reversal to the upside will follow and you should begin covering (exiting) any short positions and even potentially look to buy into the stock.

(False breakout above resistance)



The last stock market reversal indicator that most traders don't take advantage of is volume! Volume is something that pretty much everyone has on their charts, but most don't necessarily know how to use properly to benefit their trading.

Volume is simply the total number of shares traded within a defined period of time (usually a day). There are countless different way to use volume while trading. There are also plenty of volume-related indicators you can use, such as the VWAP (Volume Weighted Average Price), Volume Profile, On-Balance Volume, etc.

However, for this reversal spotting technique we'll be using the simple volume bars that can be found under your charts. What you want to look for is a trend that is no longer being supported by volume. That can be either an uptrending or downtrending stock with volume that is getting very weak compared to the volume at the beginning of the trend. This tells us that there is no longer very much volume to support the current trend, which often happens right before a trend reversal.

If you look at the example below, you can see the volume (dark blue bars) is getting lower and lower while the price of the stock is still slowly climbing up in the boxed section. When that happens it often means there isn't much demand anymore to push the stock's price higher. Because of that it does't take a ton of supply to then push the price lower and reverse the stock's trend. Eventually, the volume picks back up and pushes the stock's price lower.





Hopefully, now you may have a better understanding of some of the many reversal indicators we see in the market. These can occur on any timeframe, which means they can be used for day trading, swing trading or even long-term trades. Remember to be always be cautious if you're fighting the trend of a stock. Just like everything else in the market... reversal indicators are not 100% accurate and won't always accurately predict the end of a trend!

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