All language subtitles for 5. Failed reversal principle

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.