Anatomy of a Reversal

Dynamic Trend Following and the Entry Models

The concepts in this article apply to uptrends as well as downtrends. Shorting is nearly always a dip to buy, even during bear markets. Therefore, for this article, I will describe the process of a reversal from the perspective of a downtrend, a dip that produces the next swing long when the bottom confirms.

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This article explains how the concepts that we have studied up to now, the RT Concepts, the BT Entry, the EMA Boxes and the Diagonals, all work together.

Patience Comes From Process

When you understand how the process works across timeframes, you can let go of FOMO, and focus simply on what the system is telling us.

The primary concept is that a downtrend consists of bounces and continuation. Price may attempt to reverse only when continuation fails. This process starts on the lowest timeframes. We have chosen M2 as our initiation time frame, and therefore, when there is a flush, we have to wait for a bounce and rejection to form the first M2 Diagonal Entry Model.

This first M2 DEM sets up the backtest of M5 EMA9, and the distance between the entry and the M5 EMA9 is your potential reward. M5 EMA9 may reject and push price back into the M2 range, and if M5 EMA9 rejection fails, the M2 DEM can see upside. M5 EMA9 rejecting is a continuation attempt. If that fails, the M5 DEM sets up to challenge M10 EMA9 and so on. So when you are looking at a first bounce and an M2 DEM, keep that in mind.

Here is a blueprint.