TradingLab
Learn about a price action-based reversal trading strategy that involves finding liquidity grabs and using them to place trades with fantastic risk-reward ratios. The strategy works on all time frames and can be used for stocks, forex, and crypto trading. By using an indicator, traders can simplify the process and automate most of the work. Although this strategy isn’t perfect, it can yield fantastic results.
Reversal Trading: A Strategy for Maximum Risk-Reward Ratios
Introduction
Reversal trading is considered one of the best ways to trade in the market. The reason behind this is the traders can enter the market at the exact point where the price changes direction, which leads to insane risk-reward ratios. This strategy works for everything – stocks, Forex, and crypto – and can be used on all time frames. In this article, we will discuss the steps involved in performing this strategy, what to look for, some special tips to make it even better, and some backtest results.
Step One: Liquidity Grab
The first step in this strategy is to look for what’s called a liquidity graph or liquidity grab. Liquidity grab is simply when the price breaks a support or resistance and does a fake out and heads in the opposite direction. We want a liquidity grab because it adds fuel to the reversal. It hits all of the traders’ stop losses making the price move downwards even harder, which benefits us if we have entered a short. The statistics even back this up.
Step Two: Entry
Once we find the liquidity grab, we move to step two, which involves the entry. The entry is pretty simple; we mark the entry point at the candle that made the liquidity grab. For example, if we have a nice little support, price breaks the support with a candle, our entry would be at the candle that made the liquidity grab. The same applies to shorts. We have a resistance; price breaks this resistance barely does a liquidity grab; our short entry would be at the bottom of this candle that initiated the liquidity grab. What makes this strategy so successful is the risk-reward ratios are absolutely insane.
The Ultimate Strategy: Indicator
The indicator will automatically find everything for you, including the liquidity grab, mark the entry point, and tell you exactly when to enter, depending on whether it’s a long or short trick. It saves you a ton of time, and it even color grades depending on if it’s a long or short trick. It basically does all the work for you, and all you have to do is follow the signal. The strategy works wonders with the indicator, and you can keep repeating the same steps.
Tips to Improve the Strategy
There are some special little tricks that we can use to make the reversal strategy perform even better. First, we can use a trailing stop loss. A trailing stop loss is when the stop loss moves with the price; it trails the price closely to help us secure our profits. Second, we can use dynamic take profit levels. When the price moves in our favor, we can adjust our take profit level to ensure maximum profits. Third, we can use pivot points to help us identify potential reversal points.
Backtest Results
The backtest results are from Thomas Boca, a famous trader, and extremely interesting- the percentage gain for liquidity grabs performed way better than a pattern that did something else. These results show that the liquidity grab version performs way better than any other pattern.
Conclusion
In conclusion, reversal trading is one of the best ways to trade in the market based on the high risk-reward ratio. We can perform this strategy on all the tradable assets such as Forex, stocks, and crypto on all the time frames. The strategy involves two main steps – liquidity grab and entry – and we can improve the strategy further with various tips. The indicator performs the strategy seamlessly and saves a ton of time.
