In today’s volatile and manipulated markets, a limited risk trading strategy is essential. Software trading accounts for a very large percentage of the market volume. Hedge funds, trade syndicates, market makers, and central banks are some of the players involved in price manipulation.

Stocks, commodities, and currencies are subject to these overwhelming market forces. Many price movements do not make any practical sense. Program trading is out of control. All participants are not on the same page, resulting in erratic price movements.

According to HL Camp&Co, more than 60% of the volume on an average day is program trading. This type of computer buying and selling can account for 90% of the volume on some days. It is difficult to determine the directional bias of program traders. All computer programs must adhere to a set of rules.

Technical analysis is the only way to find out the intentions of these programs, when the market will move and in what direction. Fundamental analysis, news and reports can be misleading, unreliable and manipulative.

The only reliable source of information is provided by charting applications. We can believe what we see on the graph. The price chart is history. We can determine the probability of future events through the analysis of historical charts.

Many traders have considered reversal trading to be risky and unreliable. My research concludes that trading market reversals result in high probability trades.
Risk aversion tactics are easily employed due to the very nature of the expected pivot point.

Reversal trading offers better entry and exit signals. By entering a reversal position, the trader will quickly discover whether or not he is right in his analysis. If you are wrong, you can exit the trade with a small loss. If correct, the trade is in the direction of the trend with a very early entry.

Market reversals occur in all markets and on all time frames for a variety of reasons. Overbought and oversold conditions are the result of supply and demand. Fundamental economic conditions can explain general market sentiment. Weather and political events can affect commodities.

Many of these factors can be anticipated and factored into the trading system. All of these factors need to be taken into account when developing a low-risk approach to trading the markets. Your money is at risk at all times during a trade.

Computer programs adhere to a set of rules developed by humans. Since unknown future events cannot be programmed on a computer, historical events should be used as a guide. Historical events are recorded on the price chart and can provide information about likely future price movements.