| Updated: September 12, 2025Further talk on trend reversals
This lesson will cover the following
- How do most trends usually end?
- Scalping against or going with the trend?
- The most reliable countertrend entry
How do most trends usually end?
As we said earlier in the guide, the majority of trends end with a breakout from a trend channel. An uptrend usually ends in one of two ways. First, there may be an overshoot of the bull trend channel line, followed by a failure, a reversal to the downside and a breach below the bull trend line. The second scenario involves a breach below the bull trend line without an initial overshoot of the bull trend channel line.
If an uptrend ends with a false breakout from the trend channel line, the market will usually exhibit two legs down, and the first pullback will very often reach a lower high, testing the high of the uptrend.
If an uptrend ends with a breach of the bull trend line, the test of the trend’s high may lead either to a higher high or to a lower high. A higher high will probably be followed by two legs down, while a lower high will probably be followed by one leg down, as the first down leg already appeared just before the formation of the lower high. If the market tests the prior extreme level with a higher high, a good trading opportunity is to go short on the first lower high (as it tests the higher high). In the case of a downtrend, after a lower low, a trader should go long on the first higher low, because this supports the view that the major low is already in place.
Because trends may last longer than one would anticipate, most reversal setups fail and the majority of continuation setups succeed. This explains why traders need to use extra caution when trading against the trend based on reversal setups.
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A trader who draws a great number of trend channel lines is probably keen to detect a reversal but, at the same time, will likely miss many suitable entries in the direction of the trend. It is also worth noting that the majority of trend channel line overshoots and reversals are minor and unsuccessful during an exceptionally strong trend. As a result, a trader would find themselves in many losing trades if they entered against the trend. A better decision would be simply to wait for a breach of the trend line before trading against the trend, while treating all small trend channel line overshoots as setups for entries with the trend.
Scalping against or going with the trend?
During a strong trend with few or no large pullbacks, it is logical to start looking for small reversals because the market will eventually pull back when some traders begin taking partial gains and a sufficient number of others trading against the trend open new positions. There is indeed a choice to be made – whether to scalp against the underlying trend or to wait for the end of the pullback and then enter in the direction of the trend.
If the trend is indeed strong, it is appropriate to enter against it only if clear indications of a trend reversal are present (for example, a breakout from a previous trend line followed by a test, ending with a huge reversal bar). However, because some traders are eager to enter the market, they begin examining smaller time-frame charts (1-minute charts). The problem is that these charts continue to visualise reversals as the underlying trend develops, while the majority of these reversals fail. These traders presume that, as the 1-minute chart has small bars, entering against the trend carries smaller risk, while if the entry happens to be at the peak of the market, the potential profit will be considerable. Having this in mind, they feel comfortable taking a few small losses. However, during the course of the trading session, the small losses increase in number and the cumulative result becomes a loss, which traders are unable to neutralise during the remainder of the day. The other possibility arises when these traders manage to position themselves precisely at the end of the trend. Now, using the 1-minute chart, they will manage to scalp only a few pips or ticks of profit instead of holding the position for the larger move they initially planned.
Another approach
Consider another example. A trader using the 1-minute chart sees an extended trend move and is anxious to be in an active trade. In this case, reversals on the 1-minute chart provide an opportunity to profit by doing the opposite of what is apparent. A trader should wait for the reversal on the 1-minute chart to trigger entries against the trend, but should not take these entries. Next, they need to determine where to place the protective stop as if they had actually taken these trades. In practice, they should place a stop order in the direction of the trend at that exact price level. They will be stopped into a position in the trend’s direction, while those trading against the trend will be stopped out. At this point, there will probably be no one entering against the trend until it has developed further and another counter-trend setup appears. This strategy is actually a high-probability scalp in the trend’s direction.
The most reliable countertrend entry
The most reliable counter-trend entry is to trade counter-trend to a pullback (as the pullback represents a small trend in the opposite direction to the main trend). As soon as pullback traders have lost their dominance and trend traders regain control by breaching the trend line that contained the pullback, every small pullback that occurs from this point on, testing the trend-line breakout, is a good opportunity to enter the market. This entry is opposite to the pullback’s direction and in the direction of the major trend. What is more, it may lead to at least a test of the extreme level in the main trend.