How do you distinguish a genuine short-term reversal from a temporary price pullback?
Well, for a trader that knows what he or she is doing in the market, we know that the market does not just move in a straight line, however if volatility is high and price printed some momentum candles, it will definitely leave behind some imbalance such as FVG (fair value gaps), inverse fair value gaps, breaker block, you name it. So, to distinguish between pullback and reverse, if price respect those imbalances it created it means it's just a pullback but when price disobeys those imbalances, it's probably signaling reversal.
For example, if price is in an uptrend, you should see higher highs and higher lows, right? For a new higher high (resistance level) to be confirmed, it has to break above the previous higher high or previous resistance level. When that happens, fair value gaps, order block and breaker block is being created, for a quick continuation in the uptrend, price has to respect the previous resistance level it just broke but for a well aligned market structure price has to respect that FVG or order block that lead to the new higher high. If price strongly close below those levels, it means that a change of character or market structure shift has happened and you should wait for confirmation first before entering short position.
So, this is one example of what I'm talking about, in this trade I took on BTCUSD 2 weeks ago, that place I indicated as "MSS" was supposed to be a pullback back into an FVG so that price will continue the uptrend but that pullback failed to break above the resistance, so it became invalid because price came back with an impulsive move and closed below it which I now consider as a market structure shift (MSS). That already gave me a signal that price is going to be bearish for a short term. I marked out the order block and FVG that caused the MSS, placed my entry inside that order block and my stop lose right above that higher high/resistance. There were other confirmation I looked out for on the M15 before taking the trade.
Now, the point am just trying to make here is that, had it been price closed above that order block, I would know that the up trend is still active but you can see that price respected that level which is a good signal that that was just a pullback and not reversal.
Based on my strategy, to confirm a price reversal, I need to see that a market structure shift has happened, some people call it change of character, which I do too.
Our main focus is BTCUSDT Futures, using M1 for short-term timing and M3/M5 for additional market context.
M1 which means 1 minute is usually so noisy, so it doesn't make any sense to me when I see some people using that time frame, although everyone have their strategy. M15 works perfectly well for me.
WHAT DO YOU THINK?I'd particularly like to hear your experience:- What do you check before entering a LONG or SHORT?
- How do you identify the end of a pullback?
- Do you use volume, order flow or liquidity to confirm direction?
- What helps you avoid false reversals on M1 and M5?
Practical examples, constructive criticism and alternative approaches are welcome.
First I need to see that liquidity has been taken and then an engulfing or impulse candle must show up inside my point of interest.
Hammer candle and an engulfing candle is an indication for me, I also use a Fib retracement tool.
Order flow + liquidity.
I don't use M1, however what helps me avoid false reversal is that I usually do my analysis from a higher time frame, the low time frame is just for confirmation before taking my entry.
