Original subtitles

Let us now turn to the last principle, the principle of failed reversal.

This principle is derived from the reversal principle and is a variant of

action. What the failed reversal principle suggests is that if the price

attempts to enter a value area and succeeds, but is strongly rejected at

VPOC of that range, the reversal trade will be cancelled until further price

action is seen.

And that subsequent price action can be summed up in two assumptions.

that it succeeds in effectively breaking the VPOC or that it is driven out of

the value area.

Trading will therefore depend on which assumption is met.

If the strong reaction at the VPOC leads to an exit from the value area, the

continuation trade would be activated, while if it eventually breaks the VPOC,

the reversal scenario would continue to be active with the aim of testing the

opposite end of the value area.

In other words, If we see that the market is entering the lower part of the

value area of a given profile, we would then activate the reversal principle

that we have seen before.

On the other hand, if there is a strong bearish reaction on the VPOC, we will

have to put the full development of the reversal principle on hold until we have

analyzed the anatomy of the subsequent movements to assess which scenario is

more likely.

If the actual breakout from the VPOC does occur, i .e. the price positions

the level, we would activate the reversal scenario again, looking first

potential entry at the same VPOC.

On the other hand, if what happens is that the market pushes the price out of

the value area and breaks the value area low, then we would activate the

continuation principle that we also saw earlier, looking for a test of the value

area low in order to take advantage of a potential bearish imbalance.

Here, we have the example reversed.

If the price enters the value area at the top of the profile, On re -entry, we

would activate the reversal principle, which we would stop if the price reacts

strongly on reaching the VPOC.

If the price then manages to effectively position itself below the VPOC, we

would activate the reversal principle again to seek its full development.

If, on the other hand, the price refuses to trade back into this value area and

pushes back above it, we would trigger the bullish continuation scenario and

look for an entry above the value area high of the profile.

Let's start with the first example.

As we can see, the market opens above the previous session's profile,

the value zone, breaks through it, and then re -enters the range.

It then generates a strong reaction on the VPOC and pushes the price out of the

value zone, triggering the bullish continuation principle again.

Later, the market returns to the value area and interacts with the value area

high of the profile, generating a new bullish turn and giving the signal to

In this other example, we see that the market also opens outside the previous

session's value area, and after several attempts finally manages to break the

value area high and reach the VPOC area from where it generates a strong

rejection.

The price stays above the VPOC for a while, but finally breaks below it,

triggering the reversal scenario.

It quickly develops a test and heads towards the scenario's target, the

profile's value area low, and even beyond.

It is important to note that after the rejection above the VPOC, the price

remains above the VPOC for some time, but never manages to break out of the

value area.

As long as this situation persists, the context is one of weakness and we should

favor the reactivation of the reversal principle.

As we can see, what determines the profitability of the scenarios is

not the market remains in the value area.

In this example, the session opens below the previous value area. It makes

several attempts to re -enter, which are rejected, until it finally succeeds and

easily reaches the VPOC.

At this point, it generates a strong bearish rejection that even sends the

to the low of the value area of the profile, from where it generates a new

upward move that effectively breaks the VPOC and positions above it.

From there, the reversal scenario should be triggered and we would look for

buying signals.

Here we see how the session opens below the previous value area, so the first

reason would be that the market is in imbalance and potential bearish control

needs to be confirmed.

At the first area above which to wait for confirmation of seller control, the

value area low, the price cancels the scenario and re -enters the value area,

activating the reversal trade.

Once the VPOC is reached, sellers emerge, rebalancing the market and

the development of a strong bearish movement.

This aggressive reaction pushes the price back out of the value area,

the market settlement again and triggering the failed reversal trade

bearish continuation at this point.

It now successfully tests the value area low to initiate the bearish move from

there.

In terms of multi -day structures, here is an example that we have discussed

before. After unbalancing to the upside, it approaches the structure with a lot

of momentum and manages to break it.

re -entering the value area and reaching the VPOC, from where it generates

another strong upward move, sending the price back out of the value area.

At this point, we would activate the principle of continuity and look for a

of the value area high of the profile to buy the market.

Here, we see the same cosistry, but for an inverse structure, for a range.

After a continuous rotation between the extremes of the value area, the market

finally initiates the bearish imbalance that causes the break of the

equilibrium, at which point we activate the bearish continuation scenario.

The market then returns strongly to the side of the range, leading us to

quarantine the continuation and activate the reversal scenario.

However, once the strong rejection above the VPOC takes place, the bearish

reaction should lead us to activate the failed reversal principle and wait to

analyze what happens next.

What will happen is a breakout of the value zone at the bottom, which will

trigger the continuation trade again.

In this case, we would wait for the price of the value area low to activate

entry trigger, with the aim of profiting from a new bearish movement.

Let us take another example. This time, it is a variation that is worth

explaining in terms of the flexibility with which we must treat the market

behavior.

On this occasion, there is no strong rejection at the VPOC.

but the price simply breaks it with great weakness and begins to trade below

a sign of acceptance and an effective break of the level.

In reality, there is no need for the market to react to the VPOC to know that

this situation, the underlying weakness is total and therefore we should

automatically activate the reversal principle.

To understand this is to really understand how the market works.

The market is very unpredictable.

and we have to be flexible enough to find variants that essentially suggest

same sentiment, as is the case here.

In order to favor the failed reversal, we need to see the rejection on the

as this is the only way for the price to trade back out of the value area.

However, in the case of an effective breakout, this rejection does not

necessarily have to occur at the VPOC.

There will be occasions, as in this example, when the momentum of the market

so strong that it will break this key level directly without any prior pause.

The key is to understand what is happening and the importance of trading

At the beginning of the course, we said that the VPOC is used to determine who

is in control of the market in the short term. So when the price is below it,

the directional bias we should favor is to the downside.

We have looked at the application of the failed reversal principle to individual

structures. But as we saw with the reversal principle, they can also be

with respect to previous structures, as in this example.

The market exits the sideways to the downside, confirming the distribution,

develops a strong bearish move until it reaches levels where buyers at the

aggregate level see an opportunity to enter the market.

This generates the strong upward price reaction, leaving the entire move as a

failed discovery and returning to the last major value area.

After the price re -enters the value area, there is a strong reaction in the

VPOC until it finally manages to position itself effectively above it, at

point the reversal principle is triggered with a target at the value

of the profile, which is reached in a relatively short time.

Let's conclude with a final example that brings together several of the trading

principles we have just studied.

It is a very instructive example to illustrate the importance of keeping

buying and selling scenarios in mind in order to be prepared and to react in

time when the market tells us to do so.

In it, we can see three well -defined structures that offer us different

opportunities, taking into account their trading levels, mainly in value areas.

In this first part of the chart, we observe the development of the first

profile. As the market begins to consume time and trades, we can quickly see

that it is in a context of equilibrium.

So we start a manual profile of the entire price action to identify the

trading zones.

In an equilibrium context, we already know that the trade to apply is the

principle, where we favor reversals at the extremes of the profile.

In this case, we have identified several opportunities that could have been

exploited. Once the bearish breakout occurs, the market changes context and

enters an unbalanced environment.

The directional bias is bearish as the price is below the last major value

Trading will then be determined by the application of the continuation

principle, where we will wait for our entry trigger at the value area low

profile to try to take advantage of the continuation of the subsequent bearish

movement as it happens.

In the second part of the chart, we see the creation of a new equilibrium zone

where we can apply the reversal trade using the range principle.

Of course, before we start looking for this type of trade, we must have clearly

seen that the market is in equilibrium.

This can be easily seen when the market stops moving in the direction it has

been moving.

When this happens, i .e. when the price stops moving downwards, the market can

only do one of two things.

Either it turns sharply upward or it starts to move in a range.

We confirm that the market is in a range when we can identify several clear

points of rotation up and down.

At this point, we should start the volume profile.

After this, we know that the trade to apply is again the range trading

principle, looking for reversals at the extremes of the range.

In this example, we see several potential entries.

And in this last part of the chart, we see other potential opportunities.

First, after the breakout to the upside of the lower structure, the market

reaches the value area low of the profile of the first structure, the one

left. This has happened before.

and the price is in the same situation again.

The truth is that this entry now carries a higher risk because the market has

already developed a new structure that would be below the price.

This means that the short -term backdrop would be one of strength, and therefore

this entry may not have a high probability of success.

The market then generates a new range in an intermediate zone between the two

structures. We wait for some time to pass, and then we would be ready to

another new profile in this price action.

What happens is that the market constantly rotates between the value

and the value area low of this new structure.

But at the same time, it also collides with the value area high of the upper

structure profile and the value area low of the lower structure profile.

If we look at it this way, the reactions to the value area low of the

intermediate structure profile are also potential trades under the bullish

continuation principle of the lower structure.

there is a confluence of very important areas.

Why should we prefer a bullish continuation to a bearish continuation

point? Well, because we have the last structure at the bottom. It is the one

that developed at the bottom.

Because it is the last one, it is the one that sets the short -term context.

What happens in the last part is that the price finally unbalances to the

and even manages to enter the value zone of the first structure, which would

activate the reversal principle.

At this point, the price leaves a test of the value area low of this profile

generates a strong upward movement that runs through this structure and beyond.