What is a Major Trend Reversal (MTR) bottom in the context of trading?
It is a chart pattern where a significant bear trend reverses and begins a new bull trend, offering a potential swing trading opportunity.
What is the approximate probability that a Major Trend Reversal (MTR) setup will lead to a successful swing trade?
Approximately 40%.
To compensate for the lower probability of an MTR trade, what is the minimum required reward-to-risk ratio?
The potential reward should be at least two times the initial risk.
What sign of strength do traders look for in a minor reversal to anticipate a potential Major Trend Reversal?
Significant buying pressure, such as a rally of 5-10 or more bull bars that breaks the bear channel and moving average.
After an extremely strong sell-off, what type of entry do many traders wait for instead of buying the first reversal attempt?
A second entry buy signal, as the first attempt is likely to fail.
What are the two most likely outcomes of a minor reversal attempt in a bear trend?
It will either become a bear flag leading to trend resumption or evolve into a trading range.
A Moving Average Gap Bar is a candlestick that is completely above the moving average, with its low not touching it. What does this signify?
It is a sign of strong buying pressure, indicating bulls are powerful enough to keep prices entirely above the average price.
What is the term for a reversal that is too small to act on and is often just a temporary pause in the current trend?
A minor reversal (or ‘noise’).
In a strong bear trend, the moving average often acts as _____, where bears will add to their short positions.
resistance
A common mistake beginners make in strong trends is repeatedly trying to _____ reversals, underestimating the trend’s strength.
buy
What is the typical behavior of bulls and bears when price pulls back to the moving average for the first time after a long time below it (a ‘20 gap bar’ setup)?
Bulls take profits and bears initiate new short positions, often causing the price to reverse down again.
An unusually strong breakout of 20 or more bars late in an established trend is more likely to be an _____ rather than an acceleration of the trend.
exhaustion climax
Every Major Trend Reversal bottom is a variation of what common chart pattern?
A double bottom.
When a trader buys an MTR setup, a common initial stop-loss placement is just below the _____ of the two bottoms.
lower
A low-risk entry almost always corresponds with a _____-probability trade.
low
How can a trader achieve a higher probability entry when trading an MTR, at the cost of a larger stop-loss?
By waiting for a strong, clear breakout and buying as the new trend is confirmed, rather than trying to buy the exact bottom.
What is the difference between initial risk and actual risk in a trade?
Initial risk is the distance from the entry to the initial stop-loss; actual risk is the distance from the entry to the lowest point the market reached before moving in the trade’s favor.
What is the minimum profit target for any trade, based on the trader’s equation?
Two times the actual risk.
What is the process of raising your stop-loss order as a trade moves in your favor called?
Trailing the stop-loss.
After a strong breakout creates a new swing high, a trader might trail their stop to just below the _____ of that breakout.
bottom
The defining characteristic of a bull trend is a series of higher highs and, more importantly, a series of major _____.
higher lows
If the market breaks below a significant higher low, what does this imply about the bull trend?
The premise of a bull trend is no longer valid, and the market is likely in a trading range or has reversed.
How do Major Trend Reversals at the market open often differ from those that occur later in the day?
They tend to happen much faster and with fewer bars, requiring quicker decision-making.
A special opening pattern involves two failed attempts by bears to break below yesterday’s low. What kind of trade does this setup suggest?
A high-probability buy setup for a reversal upwards.
