Trend-Reversal Entry Strategies*
Market Wise Trading School
Breakfast of Champions
December 10, 1999
William R. Prebble, Ph.D.
*Robert Miner s Dynamic Trader 1997
Trend-Reversal Entry Strategies
" The Purpose of Technical Analysis Is to Identify Markets
That Are in a Position to Allow a Trade With Relatively Low
Risk and Acceptable Capital Exposure.
" Loss Control or Identifying the Protective Stop-loss Level Is
the Most Important Factor in Trading.
" The Same Methodology That Governs Your Trade
Opportunity Should Provide the Exact Market Activity That
Voids That Opportunity.
" Your Stop-loss Level Must Always Be Determined Before a
Trade Entry Is Initiated.
" If the Market Activity Does Not Allow Entry Within Your
Acceptable Capital Exposure, Then Don t Enter the Trade.
Trend-Reversal Entry Strategies
" Three Reversal Patterns
 Reversal Day (RD)
 Signal Day (SD)
 Snap - Back Reversal Day
" These Reversal Patterns Are Designed to
Buy at or Near the Bottom and Sell at or
Near the Tops
Trend-Reversal Entry Strategies
(cont.)
" These Daily Reversal Signals Are Only Valid As
Trend Reversal Signals When the Technical
Analysis Indicates the Market Is in a Position for
Trend Reversal.
" These Daily Reversal Signals Frequently Occur in a
Trending Market, but Will Not Result in Reversal
Unless the Market Is in a Time and Price Position
for a Reversal.
" For Most Markets, One of These Signals Will
Occur at 70%-80% of Trend Reversals of All
Degrees.
Reversal Day (RD) Entry Signal
A reversal day top is made when a market makes a new daily high
but closes below the prior day s close and the current day s open.
KRD
RD New High
Lower Open &
Close Below Open.
Lower Close
OSKRD
OSRD
Signal Day (SD) Entry Signal
Open above the prior day s close followed by a new high.
The open must be in the top 1/3 and close in bottom 1/3 of the daily range.
The close does not have to be below the prior day s close, only the current
day s close.
The initial protective stop-loss is placed one tick above the signal day high.
GSD
Gap Signal Day (GSD) is a very strong daily reversal signal.
The close does not
Gap left at the
SD
have to be below the
close of the day.
prior day s close.
Gap
Snap-Back Reversal Day
(SBRD) Entry Signal
This is a two-day reversal signal.
Day 1: New high and open in the lower 1/3 of the daily range and close in the
upper 1/3.
Day 2: Open in the upper 1/3 of the daily range and close in the lower 1/3. The
two days may be in any position to each other. The initial protective stop-loss is
placed one tick above he higher high of the two days.
Reversal-Confirmation Day
Signal (RCD)
A Trend reversal is suspected, but one of the three trend-
reversal patterns was not present. Sell on the close if the close is
below the current day s open and prior day s close. For a more
reliable signal add the qualifier that the low of entry day must
exceed the prior day s low.
RCD
RCD + new
daily low
Trend-Reversal Summary
" These Trend-reversal Entry Strategies
Only Work at True Trend-reversal -- Not
for Trend Continuation.
" If One of These Daily Reversal Signals
Does Not Occur Then Don t Take the
Trade or Use Another Entry Technique
Such As Reversal-confirmation Day
(RCD) Entry Signal.
" Remember to Maximize Profits - Only
Take High Probability Trades.
Charles Schwab
Snap-Back Reversal Day
Trend-Continuation Entry
Strategies
" Inside-Day Trade Set-Ups
" Outside-Day Trade Set-Ups
" Gann Pull Back Trade Set-Up
Inside-Day Trade Set-Ups
As long as the low of the day prior to the inside-day has not
been exceeded, buy the break above the high of the day
prior to the inside-day.
Place the initial protective sell-stop one tick below the
lower of the inside-day or entry-day low.
Buy-Stop to Enter
Buy Stop
Protective Sell-Stop
Protective Sell-
Stop lower of
inside-day or
Trend Up
entry-day low.
Trend Up
Outside-Day Trade Set-Ups
If the market has first exceeded the prior day s low, buy the break above
the prior day s high.
Place the protective sell stop one tick below the low of the entry day,
Exit the trade on the close if the close is below the current day s open and
the prior day s close.
Buy-Stop to Enter
Buy Stop
Protective Sell-Stop
Exit on Close
Trend Up
Trend Up
Outside-Day Plus Entry Set-Ups
Only trade in the direction of the trend.
For an up trend, place a buy-stop one tick above the high of the outside-day.
Maintain the buy-stop until the price range of the outside day is exceeded.
Place the initial protective sell-stop one tick below the low of the outside-day.
Buy-Stop to Enter
Buy Stop
Protective Sell-Stop
Trend Up
PSS
Trend Up
 Every market makes a top or
bottom on some exact
mathematical point in proportion
to some previous move.
W. D. Gann
Gann Pull Back Trade Set-Up
If the market has made at least a three day counter-trend, on the next day sell one tick
below the prior day s low.
Place the initial protective buy-stop one tick above the high traded for the correction.
Trend Three higher highs.
PBS
Down Set-up conditions to sell complete.
Sell-stop to enter one tick
below the prior day s low.
Sell Stop to
Enter
Place the protective buy-stop (PBS)
Exit on close if the close
one tick above the higher of the entry-
is above the entry day
day high or prior day s high.
open and the prior day
close.
PBS
Sell Stop to Enter
Sell Stop
to Enter
 All market analysis and trading strategies
are a matter of probabilities. Losses are
inevitable and a cost of doing business. The
trading plan must provide a stop-loss
approach that minimizes losses when they
occur.
Robert C. Miner
Protective Stop-Loss Placement
" The Protective Stop-loss Should Be Kept Relatively Far
From the Current Market Position Until the Trend Is
Confirmed.
" The Protective Stop-loss Should Be Brought Relatively
Close to the Market When the Trend Is Scheduled to End.
" As Trend Continues, Traders Must Have a Plan to Adjust
Protective Stops to Either Reduce the Capital Exposure for
a Loss or Protect Unrealized Profits.
" If a Market Approaches a Set-up Indicating a High
Probability That the Trend Is Terminating, the Protective
Stop-loss Should Be Brought Very Close to the Current
Market Position.
Protective Stop-Loss Placement
" Swing Stop-Loss
" Three-Day Low or High (3DL or H)
" Adjusting PSL to the 2DL and 1DL
Three-Day Low or High (3DL or H)
The lowest price of the three days from the extreme high,
inclusive of the high. Inside days are not counted.
1
1
2
Figure 1
2
Figure 2
3
3
3DL (inside-day not counted)
3DL
1
Figure 3
3
1
a 2
2
Figure 4
b
3
3DL
3DL (inside-days not counted)