Sep 6

Price Action Setups - How to Identify Trend Reversal


Edited: Sep 6



Price Action SetupsPrice Action Setups
How to Identify Trend Reversal


Price action trading considered by many to be the highest form of trading. The type of trading that is usually attributed to the professionals. It is indicators and oscillators free. Instead of packing the chart with multiple technical elements, price action trading is all about the simplicity of a clean looking chart. Experienced high-level traders don't need dozens of useless indicators decorating their charts. To them, it is a distraction at best and a complete deception at worse.



Instead, professional traders prefer to focus on price action setups that can provide high-probability trading opportunities on a day to day basis. Simply put, price action setups are a set of reliable support and resistance key-levels. That is the building block of any descent price action analysis, especially if you want to know how to identify trend reversal. Having a set of key levels that you can trust can really make a world of difference.



There are a few popular price action setups that you can study and apply to your trading routine. Fibonacci, Market Profile, Elliot Wave, Gan, Pivot Point, Point & Figure… Just to name a few. Here at Bulletproof Traders, we have developed our own proprietary price action setup – Cross-price Matrix. We always try to avoid trading with the crowd. In-fact, we're notoriously famous for going against it.



For example, most traders are constantly looking for price breakouts. We, on the other hand, are constantly looking for false breakouts, or what we like to call "fakeouts". On average, for every 1 real breakout there are 6.4 failed attempts (fakeouts). So, hunting down the false breakouts is a much more profitable business.



The presented EUR/CAD case study was a real-time position that we had managed over the course of 3 weeks during August - September 2019. It all started with an exceptional false breakout that we could identify after price had the audacity to bounce back no less than 200 pips to cross back below our key-level point of reference at 1.4806. The Daily closing bar is a first-degree trigger. It's a preliminary indication that has yet to be confirmed. The Weekly closing bar is the confirmation trigger that provides green light to go ahead with full force.



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  • There are very few trading setups that excites us as much as the Neckline - Double Top setup. This trading technique is a derivative of the Head & Shoulders pattern. The setup itself is not too abundant and will only appear every now and then. However, when it does appear, it's a gold mine. It carries one of the highest success rate scores amongst all the advanced setups that we normally apply in our day to day trading. After countless of neckline trading events, we can estimate the success rate of this trading technique at around 85%. We assume that the main reason for this high success rate score is the powerful relationship between the neckline of an established Head & Shoulders pattern and a simple Double Top Pattern that interacts with that neckline from below. Effectively speaking, on the second touch, the neckline is being confirmed by price action which by now, is officially a solid-strong resistance level, and its probably going to hold its ground. This means that with unusually high probability level, price is going to bounce off that resisting neckline into a full-fledged downside move, continuing the natural flow of the original Head & Shoulders breakout. The complimentary confirmation spikes (from the Weekly and Monthly charts) off the major resistance key level of 0.9068 created a particularly high probability situation and re-enforced our bearish conviction. This in turn, helped us to build a big size position sliding downwards. The second bounce off the neckline completes the setup and triggers our full commitment to push more trades and increase our short position. Even though we have a long way to go till our primary price target at 0.8540, we are going to utilize the relatively close by 200 Daily moving average as a secondary price target for partial profit taking. Roy Levine, Head of Trading
  • Here are some of our trading secrets. We always keep reminding our members , followers and fellow traders to be carful and highly suspicious of the common practices that the technical analysis body of knowledge has to offer. Every single one of us in the Bulletproof Traders team have experienced great deal of disappointment using some of these popular tools early on in our trading careers. As a matter of fact, a couple of years ago we decided to test some of these basic patterns to try and figure out if they even have the slightest statistical edge, meaning whether price pattern trading can produce a success rate higher than 50%. We studied 10 different patterns independently from one another in 5 different markets (Forex, Futures, Equities, Crypto and Bonds), for a time period of 22 months with more than 50 case studies for each and every single pattern. The results were rather shocking. Even though we suspected that we might not have the best-looking results (We drew that conclusion from the state of our trading performance, which back at the time, was dependent on these patterns), nothing could prepare us for this overly negative statistical picture. Not even a single pattern had a success rate higher than 50%. In-fact, some patterns presented numbers lower than 40%, and only one pattern was somewhat close to the 50% mark with a success rate score of 48.6%. Very grim picture for price pattern trading, to say the least. Here is the list of patterns that were involved in the study along with their respective success rates, as they were revealed in the two-year study: 1. Ascending/Descending triangles – 39.5% 2. Double Top/Bottom Pattern – 41.2% 3. Head & Shoulders Pattern – 48.6% 4. Trend lines – 37.0% 5. Engulfing Candlestick – 42.7% 6. Bullish/Bearish Flags – 44.4% 7. Morning/Evening Star Candlestick – 45.9% 8. Ascending/Descending Wedges – 38.2% 9. Exhaustion Gap – 42.6% 10. Hammer Candlestick – 45.5% The obvious conclusion was right there staring at our faces. Never should we ever rely on any one of these common patterns in our day to day trading activities. On their own merit, these patterns are simply not reliable enough and have no statistical edge. No wonder why so many traders fail over time, using these common practices, which are readily available to everyone on-line and in countless publications. However, this statistical picture can be massively improved beyond recognition. The principle is very simple. Do not use any of these basic patterns as a stand-alone trading technique. Instead, you should marry these patterns with a solid-strong support & resistance system. In other words, if you couple any of these patterns with a reliable support or resistance key level, the statistical data flips on its head upside down. There are many Support & Resistance systems out there. The trick here is to find a reliable one. We can mention Fibonacci Retracement , Gan lines, Wolf Wave, Point & Figure and Pivot Point system just to name a few. On a personal level, we use our own proprietary Support & Resistance system, the Cross-price Matrix , which is far more robust and reliable than the others mentioned here. Six months ago, we went back to the study. We wanted to re-test the same common patterns, only this time, coupled with our Cross-price Matrix support & resistance key-levels. Even though the study is still undergoing, we can already present the new findings, as we still collect them every single day. Here are the statistical results for the same group of patterns, as they were tested against the Cross-price Matrix system. 1. Ascending/Descending triangles – 59.1% 2. Double Top/Bottom Pattern – 63.8% 3. Head & Shoulders Pattern – 84.1% 4. Trend lines – 67.5% 5. Engulfing Candlestick – 72.0% 6. Bullish/Bearish Flags – 74.2% 7. Morning/Evening Star Candlestick – 65.9% 8. Ascending/Descending Wedges – 58.6% 9. Exhaustion Gap – 82.9% 10. Hammer Candlestick – 81.3%
  • The trading community have always had great respect to the Fibonacci methodology in general, and to the Fibonacci retracement strategy more specifically. the famous ratios have been used as a model to predict price action. Unfortunately, same with all the rest of the useless methods out there, this one was no different, at least not in its basic and common practice. The problem is, not what the literature is telling us, but rather what it is NOT telling us. It's not telling us the most important piece of information regarding the Fibonacci retracement behavior. We've been constantly told (and still are) that there are 3 most important retracement levels (38.2%, 50%, 61.8) that we should all pay very close attention to, whenever price action is approaching either one of them. Now, that may very well be true. However, it's not about these 3 key-level at all. That's just might be the dark secret that the big banks do not want traders to know. Nevertheless, here it is. There is one key-level that is much more important, far beyond the other three. It is the mighty 76.4%, Also known as "the last line of resort". The trick here is to completely ignore the famous key levels, as their getting hit by price action, and patiently wait for price to go through all of them till it finally reaches the 76.4% last line of correction. According to our own statistical research, around 50% of all corrections make it to the very edge of their capacity, which is the 76.4%. No wonder why the conventional notion of trading the other key-levels doesn't really work out for anyone. Now you know why. Filtering out only those trades that make it to the 76.4% could be a real game changer for any trader, regardless of his trading experience. From the Fibonacci retracement strategy point of view, there is only one thing that is better than a 76.4% price reaction, and that is two 76.4% price reactions. Meaning, a double bottom pattern (or double top), which can be massively indicative of price reversal. We are always on the lookout for these types of trading opportunities. We identify them early on and take appropriate action. This real-time case study on the S&P 500 is just another example of this reality. That is how we roll… 😉

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