There are highly complex trading strategies developed by teams of MIT mathematics graduates. There are also very simple trading strategies that anyone can execute if they know how to count 1, 2, 3.

What we are going to discuss today is one of the simplest ones, yet an effective one.

We’ve included the Pinescript and a link to the strategy at the end of this blog for anyone interested in checking them out.

The Art of Spotting a Price Reversal

Have you ever watched a stock price rise day after day and thought, “This can’t go on forever”? Or seen it drop steadily and wondered when it will rebound? It’s a bit like watching a ball bounce. Eventually, it loses momentum and changes direction. The trick is knowing when.

That’s where the Bar Counter Trend Reversal Strategy comes in. It’s a tool I’ve developed to help spot those moments when the market might be ready to change course.

Why Consecutive Moves Matter

Think of the market like a rubber band. Pull it too far in one direction, and it’s likely to snap back. In trading terms, this snapback can happen after several consecutive rising or falling bars (those are the up or down movements you see on a stock chart).

• Rising Bars: If a stock has been climbing for several days in a row, it might be overbought. People have been buying, pushing the price up, but eventually, they’ll take profits or new sellers will step in.
• Falling Bars: Conversely, a string of down days could mean a stock is oversold. Sellers may have pushed the price down too far, and buyers might see a bargain.

By counting these consecutive moves, we can start to anticipate when that rubber band is about to snap back.

The Added Clues of Volume and Channels

But counting bars isn’t the whole story. It’s like checking the sky for rain without looking at the weather forecast. We need more data.

Volume Confirmation (Optional, but Helpful)

Imagine you’re at an auction. If there are more and more people bidding on an item, the price goes up. In trading, volume is the number of shares traded. Increasing volume during a price rise (or fall) means more participants are in the game, pushing the trend. Eventually, that enthusiasm can peak.

By looking at volume, we get a sense of how strong the current move is and when it might be running out of steam.

Channel Confirmation (Optional, but Insightful)

Now, think of channels as guardrails on the road. They show us the usual boundaries of price movement.

• Bollinger Bands and Keltner Channels are tools that create these boundaries based on statistical calculations.
• When the price moves beyond these bands, it’s like a car hitting the rumble strip — a warning that it might be veering off course.

By adding these channels to our analysis, we can see when prices are stretching beyond their typical range, signaling a possible reversal.

Making the Strategy Work for You

No two traders are the same, just like no two markets are identical. That’s why this strategy is customizable.

Click the link here to add this strategy to your favorites, then launch it on your TradingView chart.

https://www.tradingview.com/script/0KAtQQDD-The-Bar-Counter-Trend-Reversal-Strategy-TradeDots/

• Set Your Number: Decide how many consecutive rising or falling bars you want to track. More bars mean you’re looking for stronger trends, fewer bars make the strategy more sensitive.
• Choose Your Tools: You can include volume confirmation, channel confirmation, or both. It’s like choosing which instruments to use in a toolbox.
• Adjust Your Channels: If you’re using Bollinger Bands or Keltner Channels, you can tweak their settings to fit the asset you’re trading.

Seeing is Believing: Visual Signals

I remember the first time I saw a clear signal on a chart — it was like the fog lifted. With this strategy, we’ve made it visual:

• Green Upward Triangles: These suggest it might be a good time to buy after a series of drops.
• Red Downward Triangles: These hint it might be time to sell or short after a run-up.

Putting It All Together

Here’s how you might use the strategy:

1. Set Up: Add the indicator to your TradingView chart and adjust the settings based on your preferences.
2. Watch for Signals: Keep an eye out for those triangles.
3. Consider the Bigger Picture: Use these signals as part of a broader analysis. What’s the overall market doing? Are there news events that could impact the stock?
4. Manage Your Risk: Always remember that no strategy is foolproof. Set stop-loss orders to protect yourself.

Learning from the Past: Backtesting

Before you drive a new route, it’s wise to check the map. In trading, we can look back and see how a strategy would have performed.

• Use the Strategy Tester: TradingView has a tool that lets you see historical results.
• Adjust and Learn: Maybe you find that five consecutive bars work better than three for a particular stock. The key is to keep tinkering.

The Human Side of Trading

At its core, trading isn’t just numbers and charts. It’s about people making decisions, sometimes driven by fear or greed.

Understanding this human element can make strategies like this more effective. When you see a stock that’s been climbing for ten days straight, consider how other investors might feel. Are they getting overconfident? Is there irrational exuberance?

Final Thoughts

Trading is a journey full of learning experiences. Tools like the Bar Counter Trend Reversal Strategy are like compasses — they can guide you, but you still need to navigate the terrain.

Remember:

• Stay Curious: Keep learning and adapting. Markets change, and so should your strategies.
• Be Patient: Not every signal will lead to a profitable trade. That’s okay.
• Reflect on Your Goals: Why are you trading? What does success look like for you?

Ready to Try It Out?

If this strategy resonates with you, give it a try. Add it to your toolkit and see how it fits into your trading approach. Who knows? It might just be the peek ahead on the roller coaster you’ve been looking for.

Additional Resources

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If you appreciate our strategy and insights, please help us grow by following our page and trying out our indicators.

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Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investing involves risks, and it’s important to conduct your own research or consult with a financial professional before making investment decisions.

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