Original subtitles

Let's move on to the third trading principle, the reversal principle.

We will apply this principle in markets that are initially unbalanced in one

direction, but eventually refuse to move further in that direction and generate

a sharp reversal in the opposite direction.

That is, in environments where most participants at the aggregate level

in their valuation of the asset price.

What the reversal principle tells us is that if the price attempts to enter a

value area and succeeds, it will most likely visit the opposite end of that

value area.

The market has refused to trade at those price levels, so it returns to the

previous value area.

Again, this principle is an adaptation of a well -known market profile trade,

the 80 % rule, which suggests that when price breaks out of a value area, there

is an 80 % probability that it will go all the way through the area to the

opposite end.

Trading with the reverse principle is to wait for the test inside the value

area, to look for the impulsive move to the opposite end of the value area.

In other words, if the price is above a value area and manages to break the

value area high and enter this value area, the main scenario would be to wait

for an inside test of this value area high to look for a move first towards

VPOC and eventually towards the value area low of the profile.

As with the range principle, there is a problem that the VPOC could act as a

support -resistance level that blocks the price.

Therefore, we should always take this level into account when managing the

position.

We start with the first example of session profiles.

As we can see, the market opens below the previous session's value area, so it

initially shows a bearish imbalance.

In this price position, as the context is bearish, we should prefer to look for

short opportunities.

but the market does not react at the limit of the value area and what it does

to recover it easily.

After regaining the value area, we were able to apply this reversal principle,

which tells us that although the market was initially unbalanced to one side,

this imbalance has failed and a sufficiently significant rotation has

generated to bring the price back into the value area.

Therefore, the trading scenario to consider is to look for a test of the

area low and wait for the price to develop a bullish rotation that gives us

signal to enter the market, as in this example.

In addition, we will apply the 80 % rule, which tells us that there is an 80

probability that the opposite end of the value area, in this case the value area

high of the previous session's profile, will also be reached, as it is.

Here is another example of a bearish reversal.

The price opens above the value area high of the previous session's profile.

approaches it, and easily breaks it.

On reentry, we trigger the reversal scenario and the price develops a test

within the value area high, giving rise to a new bearish impulse that easily

reaches the opposite end of the value area.

This reversal principle is quite simple to understand.

If the market manages to reenter a value area, there is a high probability that

it will visit the opposite end of this profile.

Here are two more examples.

a bullish reversal to the left and a bearish reversal to the right. The

are always the same, a re -entry into the value area, a test of the inside and

an impulsive move to the opposite extreme.

We will now look at the application of the reversal principle to multi -session

ranges. These are the basic analysis structures of the Wyckoff traders.

The principle is the same, the only difference being that instead of working

with session profiles, we are working with profiles of complete structures,

accumulation, and distribution ranges.

For these examples, we will use structures that have already been

the same principles could be applied within the same structure.

In this example, we observe two lateralizations, an accumulation on the

a distribution on the right.

After confirming the distribution, the price leaves this area and heads towards

the lower area, towards the previous accumulation.

At this point, our context should be to look for the application of the

continuation principle, by which we encourage the market to develop a

test on the value area high of the profile to expect bullish continuations

it happens.

The market reacts in this zone and offers us the opportunity to enter.

Profit taking should be established at the high volume node of the upper

structure.

As we can see, the price also reaches this area before generating a new

rotation.

Looking at this point where we have taken profits from trading the lower

structure, we are also in a position to apply the continuation principle to the

upper structure.

This is a test of the value area low and the VPOC area of the volume profile of

this upper structure, so a short entry could be considered.

The entry is good and the market falls sharply, easily reaching the volume

profile of the lower structure.

After another extreme bullish reaction, it finally manages to re -enter the

value area, at which point the reversal principle is triggered. From there, the

price develops an inside test on the value area high of the profile and the

market plummets through the entire value area and beyond.

This is a very complete example where we have seen the application of several

trading principles and also in different structures.

Here is another example of the same causistry.

The upper structure generates a bearish move that pushes the price back into the

value area of the lower structure.

This is a test within the value area high, and then the market travels

the entire value area until it reaches the value area low of the profile.

Above the same area, it generates a new rejection and develops a strong upward

movement that begins the price back into the value area of the upper structure.

It develops a test within the value area low and continues with the bullish

imbalance until it reaches the value area high of this profile.

An interesting detail of this example is the advantage of using stop orders over

other types of orders.

When the price reaches the value area high of the lower profile, we should

prefer to use the continuation principle, at least in the first

And as we can see, the market left two good bullish candlesticks at this point,

which could have been used as an entry signal.

If we had tried to enter the market with stop orders placed just above these

candlesticks, the entries would never have occurred because the market turned

sharply lower after developing these signals leaving two more bearish

candlesticks. This is why this type of entry is useful, because we need to

confirm that there is still continuity in the imbalance that is being generated

in the shorter term.

After these two unsuccessful attempts, the market finally enters the value area

again and generates an inside test that gives rise to the bearish movement.

In this other situation, however, the market would have triggered the entry,

resulting in a loss.

The price is in the continuation trading zone and forms this strong bearish

candlestick, which could have been used to enter the market short.

We place the sell stop order, and in this case the market has a continuation

that would activate this order.

We identify three possible stop loss zones at the three low volume nodes

Each of them has its advantages and disadvantages in terms of the risk taken

the confidence it provides.

The further away, the better, of course, but it may be too far away.

As we can see, only the last stop loss point would not have been reached, but

is certainly in a very distant location.

We're taking a loss. That's absolutely fine.

It's normal, and it's part of the business.

Losses will occur throughout your trading career, and we have to accept