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THE MARKET WHISPERER 30 9

Winner Reversals

Buying at a breakout is the fastest but also most dangerous method.
Buying a reversal (change of direction) is based on patterns of direction
change, which we learned about in previous chapters. It is simpler, slower
and far less risky. Relative to other methods, it is definitely a method
recommended for beginners!

Reversals are based on continuing trend. The classic definition is a
change of direction within the trend. This describes a stock’s movement
from highs to lows and back to a high (or from low to high and back to
low).
• A reversal that brings the stock back into the uptrend is called a roll-up
• A reversal that brings the stock back into its downtrend is called a roll

over

When are Reversals Preferable to Breakouts and
Breakdowns?

During the opening hours of the trading day, when the trade volume is
relatively high, both methods work well. However, the closer it gets to
lunch hour, the volume of trade decreases, together with chances of
breakouts and breakdowns working. This does not mean we cease trading
breakdowns and breakouts in later hours of the day, but as time passes
and volume decreases, we will also lessen our risks by trading in smaller
quantities.

For this reason, beyond the first ninety minutes of trading we prefer
not to enter a stock at a breakout or breakdown, but wait for it to pull
back, knowing that almost certainly the correction, or pull back, will occur.
Stock prices never rise in a straight line. They always pull back, which
allows you to buy them more cheaply. Buying at pullbacks reduces the risk
of loss and provides a greater range of security. When the stock has ceased
pulling back and once again reaches the breakout point, we are already in
a position of good profit. The stop point is still a way off, and the chances
of a second breakout where the stock will peak are much higher.