Chapter 9
Reversals Often End at Signal Bars from Prior Failed Reversals
The entry price of an early reversal that failed is often a magnet for a later, successful reversal. For example, if there is a bear trend and there have been several bull entries that failed as the market continued to sell off, each of these entry prices and the highs of every signal bar will be targets once a reversal up finally succeeds. The market will often rally all the way to the highest signal bar's high before having a significant pullback. It is likely that some traders who entered on those higher signals scaled in as the market went against them and they then used their initial entry as their final profit target, exiting breakeven on their worst entry and taking profits on all of the lower entries. It might just be that smart traders believe this to be the case and will dump their longs at those targets, or it might simply be one of the many secret handshakes that all great traders know, and they exit there simply because they know that it is a reliable recurring pattern for pullbacks to end near earlier entry points. It can also be something of a “Thank you, God, I will never do this again!” price for traders. They did not exit a losing trade, and their loss kept growing while they kept hoping for the market to come back to their entry. When it finally does, they exit and swear that they will never make that mistake again.
There is a mathematical basis for just about everything that happens in ...
