All language subtitles for 4. Reversal principle

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