Day Trading Pattern – The Reversal Trade

The Reversal Day Trading Pattern

As the name would suggest this trade is looking to take advantage of market reversals.  The reversal pattern will trade to a blue countertrend zone and then trade through the opposite intermediate zone, setting up the day trading pattern.  In the example below we first see the ZoneTraderPro Exhaustion day trading pattern.  When the market reaches the intermediate support zone, we see a $TICK filter dot indicating the sellers are coming in.  The low $TICK is almost 300 more than the previous low.  The market then trades 6 ticks through the green intermediate support zone.

Very Important – The adverse excursion of 6 ticks is calculated from the top of the support zone.  The opposite is true for a resistance zone.

The stop is a very small 4-5 ticks.  It is important to understand how this is calculated.   MAE is the Maximum Adverse Excursion.  When the MAE is 4-5 the statistics indicate there is a 8.4% chance that the market will trade to where the blue line is drawn on the chart.  When there is a 6 tick adverse excursion the number is down to 3.6%.

This is what make the Reversal trade a ZoneTraderPro favorite.  This trade occurred at 1420 Hours EST, which is late in the day for the bond market.  The bond market has smaller moves in the afternoon, absent of news.  But exactly as the ES makes a reversal day trading pattern, the bond market is trading at blue countertrend support.

Bond market trading at support
Bond market trading at support

With the bond market trading at support, that would favor the short ES trade.  With all of the filters in place, this is a great trade with little risk.

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