The Power of Reversals – Timing Your Entry Like a Pro

If you’re looking for the perfect entry into a trade, stop guessing and start paying attention to reversals. A reversal is one of the most powerful tools in The Strat—it tells you exactly when the market is flipping directions and gives you a clear, actionable entry.

Let’s break it down.

What Is a Reversal?

A reversal happens when price changes direction, plain and simple. But The Strat lets us identify these reversals with 100% objectivity. We look for specific patterns like:

1. Two-Two Reversals (2-2 Reversal):

• A “2 down” followed by a “2 up,” or vice versa.
• Example: Price breaks below the previous bar’s low (2 down), but then a new bar forms and pushes above the previous bar’s high (2 up). That’s a reversal.

2. Inside Bar Reversals (1-2-2):

• An inside bar (Scenario 1) followed by a directional move in the opposite direction.

3. Three-Two Reversals (3-2):

• A broadening formation (Scenario 3) that confirms its direction with a “2.”

Why Reversals Are Key

Most traders chase breakouts and get burned when price reverses against them. Not us. With The Strat, we wait for the reversal before entering a trade.

Here’s why:

• Reversals trap the other side. Sellers get caught short, or buyers get caught long, and we take advantage of that.
• They give you clear targets. A reversal tells us where price is likely to go next—usually the other side of the broadening formation.

How to Spot a Reversal

Let’s make this actionable. Next time you’re looking at a chart:

1. Identify the current scenario (1, 2, or 3).
2. Watch for a bar that flips the direction.
3. When it breaks the reversal level, that’s your entry.

Example: AMD Weekly Reversal

Let’s take AMD as an example. A few weeks ago, AMD had a “2 up” weekly bar followed by a “2 down” reversal. When the 2 down broke, it wasn’t just AMD—it was semiconductors, tech, and the broader market reversing at the same time.

That’s what we call a simultaneous break—more on that in our next post.

Homework

Find a recent reversal in your favorite stock. Look for a 2-2, 1-2-2, or 3-2 pattern. Once you spot it, ask yourself:

• Did price continue in the new direction?
• Did it hit its target (e.g., the other side of the broadening formation)?

Reversals are the bread and butter of The Strat. Learn to spot them, and you’ll always know when to enter.