Sunday, October 30, 2011

This is how we trade reversals

We’re all about looking for a tradable spot for reversion to mean trades, and then waiting for it to hit.    Sometimes it hits, sometimes it doesn’t, but it’s how we trade.
An hour ago we wrote: 
What do we mean buy “buy on reversal, stop under”?   This means that you wait until the stock/future hits your support level and reverses — you buy your number with stop at the low.  In this case the buy was the reversal back to 1710 with stop just under 1707.7
Our first target usually is the 9EMA (in this case 1718 as we posted).    8 point target trade for just over 2 point stop.  Good risk/reward.
That’s exactly how we trade support long/resistance short  reversion to mean trades.  The up-side is that it gives you a defined stop and good odds at a win.  The down-side is sometimes the stock doesn’t hit your level and you miss the trade.