1 00:00:00,240 --> 00:00:04,420 Let us now turn to the last principle, the principle of failed reversal. 2 00:00:05,120 --> 00:00:09,460 This principle is derived from the reversal principle and is a variant of 3 00:00:09,460 --> 00:00:14,160 action. What the failed reversal principle suggests is that if the price 4 00:00:14,160 --> 00:00:18,380 attempts to enter a value area and succeeds, but is strongly rejected at 5 00:00:18,380 --> 00:00:23,060 VPOC of that range, the reversal trade will be cancelled until further price 6 00:00:23,060 --> 00:00:24,060 action is seen. 7 00:00:24,320 --> 00:00:27,880 And that subsequent price action can be summed up in two assumptions. 8 00:00:28,440 --> 00:00:33,120 that it succeeds in effectively breaking the VPOC or that it is driven out of 9 00:00:33,120 --> 00:00:34,120 the value area. 10 00:00:34,480 --> 00:00:37,580 Trading will therefore depend on which assumption is met. 11 00:00:37,980 --> 00:00:43,220 If the strong reaction at the VPOC leads to an exit from the value area, the 12 00:00:43,220 --> 00:00:47,760 continuation trade would be activated, while if it eventually breaks the VPOC, 13 00:00:48,020 --> 00:00:52,180 the reversal scenario would continue to be active with the aim of testing the 14 00:00:52,180 --> 00:00:53,880 opposite end of the value area. 15 00:00:54,620 --> 00:00:58,610 In other words, If we see that the market is entering the lower part of the 16 00:00:58,610 --> 00:01:02,750 value area of a given profile, we would then activate the reversal principle 17 00:01:02,750 --> 00:01:03,970 that we have seen before. 18 00:01:04,250 --> 00:01:08,870 On the other hand, if there is a strong bearish reaction on the VPOC, we will 19 00:01:08,870 --> 00:01:12,750 have to put the full development of the reversal principle on hold until we have 20 00:01:12,750 --> 00:01:16,570 analyzed the anatomy of the subsequent movements to assess which scenario is 21 00:01:16,570 --> 00:01:17,570 more likely. 22 00:01:17,850 --> 00:01:23,430 If the actual breakout from the VPOC does occur, i .e. the price positions 23 00:01:23,430 --> 00:01:28,240 the level, we would activate the reversal scenario again, looking first 24 00:01:28,240 --> 00:01:30,200 potential entry at the same VPOC. 25 00:01:30,540 --> 00:01:34,960 On the other hand, if what happens is that the market pushes the price out of 26 00:01:34,960 --> 00:01:39,300 the value area and breaks the value area low, then we would activate the 27 00:01:39,300 --> 00:01:43,940 continuation principle that we also saw earlier, looking for a test of the value 28 00:01:43,940 --> 00:01:47,240 area low in order to take advantage of a potential bearish imbalance. 29 00:01:48,520 --> 00:01:50,420 Here, we have the example reversed. 30 00:01:50,760 --> 00:01:55,440 If the price enters the value area at the top of the profile, On re -entry, we 31 00:01:55,440 --> 00:01:59,360 would activate the reversal principle, which we would stop if the price reacts 32 00:01:59,360 --> 00:02:01,060 strongly on reaching the VPOC. 33 00:02:01,720 --> 00:02:06,780 If the price then manages to effectively position itself below the VPOC, we 34 00:02:06,780 --> 00:02:09,880 would activate the reversal principle again to seek its full development. 35 00:02:10,460 --> 00:02:14,960 If, on the other hand, the price refuses to trade back into this value area and 36 00:02:14,960 --> 00:02:19,500 pushes back above it, we would trigger the bullish continuation scenario and 37 00:02:19,500 --> 00:02:22,440 look for an entry above the value area high of the profile. 38 00:02:23,500 --> 00:02:25,260 Let's start with the first example. 39 00:02:25,600 --> 00:02:30,520 As we can see, the market opens above the previous session's profile, 40 00:02:30,520 --> 00:02:33,940 the value zone, breaks through it, and then re -enters the range. 41 00:02:34,560 --> 00:02:39,560 It then generates a strong reaction on the VPOC and pushes the price out of the 42 00:02:39,560 --> 00:02:43,040 value zone, triggering the bullish continuation principle again. 43 00:02:43,820 --> 00:02:48,020 Later, the market returns to the value area and interacts with the value area 44 00:02:48,020 --> 00:02:52,780 high of the profile, generating a new bullish turn and giving the signal to 45 00:02:53,710 --> 00:02:58,270 In this other example, we see that the market also opens outside the previous 46 00:02:58,270 --> 00:03:02,810 session's value area, and after several attempts finally manages to break the 47 00:03:02,810 --> 00:03:06,970 value area high and reach the VPOC area from where it generates a strong 48 00:03:06,970 --> 00:03:07,970 rejection. 49 00:03:08,130 --> 00:03:12,850 The price stays above the VPOC for a while, but finally breaks below it, 50 00:03:12,890 --> 00:03:14,390 triggering the reversal scenario. 51 00:03:14,910 --> 00:03:19,370 It quickly develops a test and heads towards the scenario's target, the 52 00:03:19,370 --> 00:03:21,790 profile's value area low, and even beyond. 53 00:03:22,510 --> 00:03:27,210 It is important to note that after the rejection above the VPOC, the price 54 00:03:27,210 --> 00:03:32,170 remains above the VPOC for some time, but never manages to break out of the 55 00:03:32,170 --> 00:03:33,170 value area. 56 00:03:33,250 --> 00:03:38,490 As long as this situation persists, the context is one of weakness and we should 57 00:03:38,490 --> 00:03:40,750 favor the reactivation of the reversal principle. 58 00:03:41,470 --> 00:03:46,090 As we can see, what determines the profitability of the scenarios is 59 00:03:46,090 --> 00:03:48,210 not the market remains in the value area. 60 00:03:49,160 --> 00:03:53,640 In this example, the session opens below the previous value area. It makes 61 00:03:53,640 --> 00:03:57,860 several attempts to re -enter, which are rejected, until it finally succeeds and 62 00:03:57,860 --> 00:03:59,280 easily reaches the VPOC. 63 00:04:00,020 --> 00:04:04,560 At this point, it generates a strong bearish rejection that even sends the 64 00:04:04,560 --> 00:04:08,360 to the low of the value area of the profile, from where it generates a new 65 00:04:08,360 --> 00:04:12,340 upward move that effectively breaks the VPOC and positions above it. 66 00:04:12,660 --> 00:04:16,820 From there, the reversal scenario should be triggered and we would look for 67 00:04:16,820 --> 00:04:17,820 buying signals. 68 00:04:18,510 --> 00:04:22,910 Here we see how the session opens below the previous value area, so the first 69 00:04:22,910 --> 00:04:26,910 reason would be that the market is in imbalance and potential bearish control 70 00:04:26,910 --> 00:04:28,010 needs to be confirmed. 71 00:04:28,590 --> 00:04:33,190 At the first area above which to wait for confirmation of seller control, the 72 00:04:33,190 --> 00:04:37,530 value area low, the price cancels the scenario and re -enters the value area, 73 00:04:37,690 --> 00:04:39,310 activating the reversal trade. 74 00:04:39,770 --> 00:04:44,710 Once the VPOC is reached, sellers emerge, rebalancing the market and 75 00:04:44,710 --> 00:04:46,630 the development of a strong bearish movement. 76 00:04:47,130 --> 00:04:51,490 This aggressive reaction pushes the price back out of the value area, 77 00:04:51,490 --> 00:04:55,030 the market settlement again and triggering the failed reversal trade 78 00:04:55,030 --> 00:04:56,890 bearish continuation at this point. 79 00:04:57,250 --> 00:05:02,370 It now successfully tests the value area low to initiate the bearish move from 80 00:05:02,370 --> 00:05:03,370 there. 81 00:05:03,390 --> 00:05:07,330 In terms of multi -day structures, here is an example that we have discussed 82 00:05:07,330 --> 00:05:12,190 before. After unbalancing to the upside, it approaches the structure with a lot 83 00:05:12,190 --> 00:05:14,090 of momentum and manages to break it. 84 00:05:14,360 --> 00:05:18,880 re -entering the value area and reaching the VPOC, from where it generates 85 00:05:18,880 --> 00:05:23,060 another strong upward move, sending the price back out of the value area. 86 00:05:23,620 --> 00:05:28,000 At this point, we would activate the principle of continuity and look for a 87 00:05:28,000 --> 00:05:31,020 of the value area high of the profile to buy the market. 88 00:05:31,920 --> 00:05:36,520 Here, we see the same cosistry, but for an inverse structure, for a range. 89 00:05:37,180 --> 00:05:41,510 After a continuous rotation between the extremes of the value area, the market 90 00:05:41,510 --> 00:05:44,810 finally initiates the bearish imbalance that causes the break of the 91 00:05:44,810 --> 00:05:48,870 equilibrium, at which point we activate the bearish continuation scenario. 92 00:05:49,410 --> 00:05:53,730 The market then returns strongly to the side of the range, leading us to 93 00:05:53,730 --> 00:05:57,030 quarantine the continuation and activate the reversal scenario. 94 00:05:57,630 --> 00:06:02,830 However, once the strong rejection above the VPOC takes place, the bearish 95 00:06:02,830 --> 00:06:06,850 reaction should lead us to activate the failed reversal principle and wait to 96 00:06:06,850 --> 00:06:08,170 analyze what happens next. 97 00:06:08,830 --> 00:06:12,810 What will happen is a breakout of the value zone at the bottom, which will 98 00:06:12,810 --> 00:06:14,570 trigger the continuation trade again. 99 00:06:15,050 --> 00:06:19,530 In this case, we would wait for the price of the value area low to activate 100 00:06:19,530 --> 00:06:23,150 entry trigger, with the aim of profiting from a new bearish movement. 101 00:06:24,070 --> 00:06:28,070 Let us take another example. This time, it is a variation that is worth 102 00:06:28,070 --> 00:06:31,490 explaining in terms of the flexibility with which we must treat the market 103 00:06:31,490 --> 00:06:32,490 behavior. 104 00:06:32,770 --> 00:06:36,550 On this occasion, there is no strong rejection at the VPOC. 105 00:06:37,210 --> 00:06:41,510 but the price simply breaks it with great weakness and begins to trade below 106 00:06:41,570 --> 00:06:44,590 a sign of acceptance and an effective break of the level. 107 00:06:44,950 --> 00:06:50,050 In reality, there is no need for the market to react to the VPOC to know that 108 00:06:50,050 --> 00:06:54,430 this situation, the underlying weakness is total and therefore we should 109 00:06:54,430 --> 00:06:56,650 automatically activate the reversal principle. 110 00:06:57,290 --> 00:07:00,910 To understand this is to really understand how the market works. 111 00:07:01,190 --> 00:07:02,890 The market is very unpredictable. 112 00:07:03,630 --> 00:07:07,390 and we have to be flexible enough to find variants that essentially suggest 113 00:07:07,390 --> 00:07:09,810 same sentiment, as is the case here. 114 00:07:10,330 --> 00:07:14,950 In order to favor the failed reversal, we need to see the rejection on the 115 00:07:15,190 --> 00:07:19,630 as this is the only way for the price to trade back out of the value area. 116 00:07:19,890 --> 00:07:24,330 However, in the case of an effective breakout, this rejection does not 117 00:07:24,330 --> 00:07:26,590 necessarily have to occur at the VPOC. 118 00:07:27,210 --> 00:07:31,810 There will be occasions, as in this example, when the momentum of the market 119 00:07:31,810 --> 00:07:36,110 so strong that it will break this key level directly without any prior pause. 120 00:07:36,570 --> 00:07:40,670 The key is to understand what is happening and the importance of trading 121 00:07:40,930 --> 00:07:45,490 At the beginning of the course, we said that the VPOC is used to determine who 122 00:07:45,490 --> 00:07:49,510 is in control of the market in the short term. So when the price is below it, 123 00:07:49,590 --> 00:07:52,730 the directional bias we should favor is to the downside. 124 00:07:53,670 --> 00:07:57,590 We have looked at the application of the failed reversal principle to individual 125 00:07:57,590 --> 00:08:02,420 structures. But as we saw with the reversal principle, they can also be 126 00:08:02,420 --> 00:08:05,120 with respect to previous structures, as in this example. 127 00:08:05,480 --> 00:08:10,620 The market exits the sideways to the downside, confirming the distribution, 128 00:08:10,620 --> 00:08:14,460 develops a strong bearish move until it reaches levels where buyers at the 129 00:08:14,460 --> 00:08:17,080 aggregate level see an opportunity to enter the market. 130 00:08:17,560 --> 00:08:22,660 This generates the strong upward price reaction, leaving the entire move as a 131 00:08:22,660 --> 00:08:26,000 failed discovery and returning to the last major value area. 132 00:08:26,670 --> 00:08:30,870 After the price re -enters the value area, there is a strong reaction in the 133 00:08:30,870 --> 00:08:36,190 VPOC until it finally manages to position itself effectively above it, at 134 00:08:36,190 --> 00:08:40,390 point the reversal principle is triggered with a target at the value 135 00:08:40,390 --> 00:08:43,750 of the profile, which is reached in a relatively short time. 136 00:08:44,730 --> 00:08:48,830 Let's conclude with a final example that brings together several of the trading 137 00:08:48,830 --> 00:08:50,390 principles we have just studied. 138 00:08:50,880 --> 00:08:55,120 It is a very instructive example to illustrate the importance of keeping 139 00:08:55,120 --> 00:09:00,020 buying and selling scenarios in mind in order to be prepared and to react in 140 00:09:00,020 --> 00:09:01,820 time when the market tells us to do so. 141 00:09:02,400 --> 00:09:06,540 In it, we can see three well -defined structures that offer us different 142 00:09:06,540 --> 00:09:11,260 opportunities, taking into account their trading levels, mainly in value areas. 143 00:09:12,080 --> 00:09:16,140 In this first part of the chart, we observe the development of the first 144 00:09:16,140 --> 00:09:21,020 profile. As the market begins to consume time and trades, we can quickly see 145 00:09:21,020 --> 00:09:22,920 that it is in a context of equilibrium. 146 00:09:23,300 --> 00:09:28,080 So we start a manual profile of the entire price action to identify the 147 00:09:28,080 --> 00:09:29,080 trading zones. 148 00:09:29,400 --> 00:09:34,140 In an equilibrium context, we already know that the trade to apply is the 149 00:09:34,140 --> 00:09:37,600 principle, where we favor reversals at the extremes of the profile. 150 00:09:38,060 --> 00:09:41,840 In this case, we have identified several opportunities that could have been 151 00:09:41,840 --> 00:09:47,080 exploited. Once the bearish breakout occurs, the market changes context and 152 00:09:47,080 --> 00:09:48,540 enters an unbalanced environment. 153 00:09:49,210 --> 00:09:53,670 The directional bias is bearish as the price is below the last major value 154 00:09:54,330 --> 00:09:57,550 Trading will then be determined by the application of the continuation 155 00:09:57,550 --> 00:10:01,970 principle, where we will wait for our entry trigger at the value area low 156 00:10:01,970 --> 00:10:06,010 profile to try to take advantage of the continuation of the subsequent bearish 157 00:10:06,010 --> 00:10:07,330 movement as it happens. 158 00:10:08,130 --> 00:10:12,650 In the second part of the chart, we see the creation of a new equilibrium zone 159 00:10:12,650 --> 00:10:15,730 where we can apply the reversal trade using the range principle. 160 00:10:16,430 --> 00:10:20,470 Of course, before we start looking for this type of trade, we must have clearly 161 00:10:20,470 --> 00:10:22,010 seen that the market is in equilibrium. 162 00:10:22,710 --> 00:10:26,350 This can be easily seen when the market stops moving in the direction it has 163 00:10:26,350 --> 00:10:27,189 been moving. 164 00:10:27,190 --> 00:10:31,610 When this happens, i .e. when the price stops moving downwards, the market can 165 00:10:31,610 --> 00:10:33,110 only do one of two things. 166 00:10:33,390 --> 00:10:36,890 Either it turns sharply upward or it starts to move in a range. 167 00:10:37,550 --> 00:10:41,410 We confirm that the market is in a range when we can identify several clear 168 00:10:41,410 --> 00:10:43,390 points of rotation up and down. 169 00:10:43,930 --> 00:10:46,230 At this point, we should start the volume profile. 170 00:10:47,110 --> 00:10:50,790 After this, we know that the trade to apply is again the range trading 171 00:10:50,790 --> 00:10:54,150 principle, looking for reversals at the extremes of the range. 172 00:10:54,570 --> 00:10:57,390 In this example, we see several potential entries. 173 00:10:58,230 --> 00:11:01,750 And in this last part of the chart, we see other potential opportunities. 174 00:11:02,630 --> 00:11:06,890 First, after the breakout to the upside of the lower structure, the market 175 00:11:06,890 --> 00:11:11,270 reaches the value area low of the profile of the first structure, the one 176 00:11:11,270 --> 00:11:13,290 left. This has happened before. 177 00:11:13,710 --> 00:11:15,650 and the price is in the same situation again. 178 00:11:16,090 --> 00:11:20,390 The truth is that this entry now carries a higher risk because the market has 179 00:11:20,390 --> 00:11:23,550 already developed a new structure that would be below the price. 180 00:11:24,110 --> 00:11:28,350 This means that the short -term backdrop would be one of strength, and therefore 181 00:11:28,350 --> 00:11:30,850 this entry may not have a high probability of success. 182 00:11:31,490 --> 00:11:35,790 The market then generates a new range in an intermediate zone between the two 183 00:11:35,790 --> 00:11:40,310 structures. We wait for some time to pass, and then we would be ready to 184 00:11:40,310 --> 00:11:42,550 another new profile in this price action. 185 00:11:43,310 --> 00:11:47,490 What happens is that the market constantly rotates between the value 186 00:11:47,490 --> 00:11:49,910 and the value area low of this new structure. 187 00:11:50,230 --> 00:11:54,610 But at the same time, it also collides with the value area high of the upper 188 00:11:54,610 --> 00:11:58,410 structure profile and the value area low of the lower structure profile. 189 00:11:59,310 --> 00:12:03,430 If we look at it this way, the reactions to the value area low of the 190 00:12:03,430 --> 00:12:07,570 intermediate structure profile are also potential trades under the bullish 191 00:12:07,570 --> 00:12:09,590 continuation principle of the lower structure. 192 00:12:10,280 --> 00:12:12,900 there is a confluence of very important areas. 193 00:12:13,460 --> 00:12:17,400 Why should we prefer a bullish continuation to a bearish continuation 194 00:12:17,400 --> 00:12:22,380 point? Well, because we have the last structure at the bottom. It is the one 195 00:12:22,380 --> 00:12:23,580 that developed at the bottom. 196 00:12:23,800 --> 00:12:28,040 Because it is the last one, it is the one that sets the short -term context. 197 00:12:28,780 --> 00:12:33,140 What happens in the last part is that the price finally unbalances to the 198 00:12:33,140 --> 00:12:37,640 and even manages to enter the value zone of the first structure, which would 199 00:12:37,640 --> 00:12:39,100 activate the reversal principle. 200 00:12:39,880 --> 00:12:44,940 At this point, the price leaves a test of the value area low of this profile 201 00:12:44,940 --> 00:12:49,040 generates a strong upward movement that runs through this structure and beyond.