How to Determine When a Reversal Is Going to Take Place – Complete Course
If you’ve traded for even a few days, you already know the biggest pain point—price moves in your direction for a while and then suddenly flips. This reversal wipes out profits, hits stop loss, or even traps traders into chasing the wrong side. Understanding market reversals isn’t just a cool skill… it’s the foundation of consistent trading. When you know exactly when the market is likely to flip direction, your entries get sharper, exits become smarter, and your overall performance improves drastically.
This 1200-word course-style guide walks you through how to determine when a reversal is going to take place. We blend technical tools, price action logic, volume clues, and institutional-level market structure so you can confidently spot reversals before they fully unfold. Whether you trade Forex, crypto, indices, or commodities, the concepts remain the same.
Let’s dive in.
Understanding What a Reversal Actually Is
A reversal isn’t just “the market moving the opposite way.” It’s a complete shift in structure, sentiment, and order flow. Most beginners confuse a pullback with a reversal, and this mistake alone destroys accounts. A pullback is temporary. A reversal is permanent until the next one happens.
A reversal happens when:
- Trend structure breaks
- Liquidity shifts
- Momentum weakens
- Volume confirms
- Smart money shows a directional change
By learning the difference between a reaction and a true reversal, you avoid entering too early or too late.
Key Concepts for Identifying Reversals
Below are the most important techniques used by professional traders, hedge funds, and smart-money-driven systems.
1. Break of Market Structure (BOS or CHoCH)
Structure is the first clue. Uptrends make higher highs and higher lows. Downtrends make lower lows and lower highs.
A reversal forms when this pattern breaks.
Signs of a structure-based reversal:
- A higher low breaks after an uptrend
- A lower high breaks after a downtrend
- The market prints the first opposite-side break (BOS)
- CHoCH (Change of Character) appears after consolidation
When structure changes, the direction almost always changes with it. This is the earliest professional-level signal.
2. Support & Resistance Fails
Strong reversal signs occur when the market violently rejects a zone that was previously respected.
Examples:
- Price keeps bouncing from a support level… then suddenly breaks through
- Price keeps rejecting a resistance level… then suddenly explodes above it
When a key level flips, the trend usually flips too.
3. Divergence Between Price and Indicators
Divergence is one of the most powerful but underrated reversal weapons.
Use RSI, MACD, or Stochastic divergence:
- Price makes higher highs, indicator makes lower highs → Bearish reversal
- Price makes lower lows, indicator makes higher lows → Bullish reversal
This shows a clear loss of momentum. Even if the market tries to push further, it usually loses steam and reverses.
4. Candlestick Reversal Patterns
Candles reveal buying and selling behavior without any indicator. Look for psychological shifts.
Strong reversal patterns include:
- Pin bar
- Engulfing candle
- Morning/evening star
- Three-line strike
- Tweezer top/bottom
- Hammer / inverted hammer
One candle doesn’t guarantee a reversal, but when combined with structure or volume, it becomes extremely reliable.
5. Volume Confirmation
Volume reveals the strength behind the move.
Reversals often appear when:
- Volume spikes in the opposite direction
- Breakouts occur with low volume (fakeouts)
- Previous trend weakens with declining volume
If price makes a new high but volume is dropping, that high is often the last push before reversal.
6. Smart Money Concepts (ICT / SMC)
Institutions leave footprints before every major reversal. Study these and you’ll catch flips earlier than retail traders.
Smart money reversal clues:
- Liquidity grabs (stop hunt wicks)
- Mitigation blocks
- Order blocks forming at extremes
- FVG (fair value gap) rejections
- Displacement after accumulation/distribution
When you see liquidity taken and a strong displacement candle appears, a reversal is already starting.
7. Trendline Breaks
Trendlines may look simple, but they work extremely well when combined with structure.
A reversal begins when:
- A steep trendline breaks
- Retest happens
- Price rejects the retest
- New lower lows / higher highs print
Trendline breaks + retests are one of the most beginner-friendly reversal techniques.
8. Overbought and Oversold Zones
Indicators such as RSI and Stochastic show when price is “too stretched.”
Reversal potential rises when:
- RSI > 70 or < 30
- Stochastic > 80 or < 20
- Both indicators confirm exhaustion
When overbought/oversold lines combine with divergence, the reversal probability becomes extremely high.
How to Combine All These Tools Into a Reversal Strategy
It’s not one indicator or one candle… it’s a confluence.
Here’s a simple but powerful reversal strategy used in many trading courses:
Step 1: Wait for liquidity to be taken
Market sweeps a high or low.
This is where retail traders get trapped.
Step 2: Look for a CHoCH or BOS
Once structure shifts, price is hinting at a new trend.
Step 3: Look for a strong reversal candle (e.g., engulfing)
This shows momentum switching sides.
Step 4: Check divergence or volume
If either confirms, reversal reliability increases sharply.
Step 5: Enter on retest for a safer entry
The retest almost always happens.
This gives confirmation and reduces risk.
Step 6: Trade toward new structure levels
Trade flows smoothly if you follow the new trend logic.
Common Mistakes Traders Make When Predicting Reversals
1. Entering too early
Reversal prediction isn’t forecasting—it’s waiting for confirmation.
2. Relying only on indicators
Indicators lag. Price action leads.
3. Confusing pullbacks with reversals
Learn structure, don’t panic.
4. Trading against strong trends without logic
If fundamentals support the trend, be careful.
5. Ignoring volume
Volume tells the truth faster than indicators.
When Not to Trade Reversals
Avoid reversal setups during:
- Heavy news (NFP, CPI, FOMC)
- Illiquid sessions
- Weak price action zones
- Mid-range consolidation
Reversal success increases when market structure is clean.
Final Thoughts
Learning reversal detection is one of the most important skills a trader can ever develop. Instead of guessing or reacting emotionally, you’ll begin to anticipate the shift logically. Use the tools above—market structure, volume, SMC logic, divergence, and candlestick psychology—to create a confluence-based approach that keeps you ahead of major market turns.