If you can identify the trend reversal at the right time you can make good profit by going long or short .There are lots of method to identify trend revresal , here I am going to discuss the method described by Victor Sperandeo in his book trader vic .This method is widely used to find out major trend reversal
This is a very simple three step method to identify trend reversal .Draw a trendline , the first signal of trend reversal occurs when the trendline is broken , the second signal occurs when the price retest the recent high or low and back away from it . The final conformation signal occurs when prices break through the previous minor low or high .It confirms that the uptrend or downtrend has reversed .Lets see in detail how this works in uptreand and downtrend .
Trend Reversal in a Downtrend
Draw a downwards trendline . The break of the treandline at point 1 is the first signal of trend reversal . Test of the recent low (point 2 )is the second signal of trend reversal , this is the time when you can start buying with the stop loss below the recent low . The trend reversal confirms when the price breaks through the minor high (point 3 )
Trend Reversal in a Uptrend
The break of the trendline at point A is the first signal of trend change , the test of the recent high at point B is the second signal of trend reversal , this is the point where you can start selling with the stop loss above the recent high . The break down of the recent low at point C confirms the reversal of downtrend .
This Victor Sperandeo method helps to identify major trend reversal rather than short term swings . All trend reversal should be confirmed with increase of volume .