How to spot real turning points — not just dead-cat bounces.
“Not every dip is a buying opportunity. Smart traders wait for signs of strength — not just weakness fading.”
Investing and reversals
Why Reversals Are Tempting — and Dangerous
Everyone wants to buy the bottom. But most failed trades come from trying to catch falling knives.
A real reversal doesn’t just stop going down — it starts going up with intent.
Traders often:
The result? They get trapped in bounces that fail — instead of participating in trends that last.
How to Spot a Potential Reversal Setup
Look for:
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Reclaiming a major support/resistance level (especially after a breakdown or shakeout)
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Higher low after capitulation — shows buyers stepping in with conviction
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Volume confirmation — increasing on the bounce, not just the dip
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Divergence on momentum indicators — RSI, MACD, etc. showing strength before price does
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Stabilization near a known level — prior breakout zone, VWAP, or moving average
What to Avoid in Reversal Trading
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Entering before any strength shows up
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Buying into massive red candles just because they “look oversold”
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Holding without a plan if the reversal doesn’t confirm
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Assuming the first green day is the bottom
📚 Analogy: A real reversal is like a car that’s not just slowing down — it’s turned around and picked up speed.
Entry Tactics for Reversals
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Wait for confirmation — reclaim of a prior support level, or break of a short-term trendline
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Use smaller size initially — and scale in as confirmation builds
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Place stops just below the new higher low — protect against fakeouts
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Don’t forget the big picture — is the broader trend still down? That limits the bounce
Bonus: Look for reversals in strong companies with a fundamental reason to bounce — not just technical setups.
Quote to Remember
“You don’t need to buy the bottom. You need to buy the turn.”
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