How to determine when a reversal is going to take place Course

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.