The long reversal is similar to the short reversal but simply reversed as below:
When looking for a long reversal one of the things generally considered is when price starts to make higher highs (HH’s) and higher lows (HL’s). However the following pattern presents some very good opportunities to enter long trades earlier and with more confluence.
Price reaches an extreme point, in this case a low or demand. Price then drops below that extreme point creating a lower low. Next price rallies above the original extreme with a great force breaking highs. This shows that buying pressure is now in control.
This can also annotated as follows: L – H – LL – HH
That is low – high – lower low – higher high.
There are two reasons why I adopt this approach.
The typical series of HH’s and HL’s can take a while to form whereas the above combination enables me to spot the direction change sooner.
I like a bit more confirmation than simply looking for HH’s and HL’s
This acts as better confirmation for me as it shows that buying pressure in now in control.
Low – Price is moving down
Lower High – Further proof that price is moving down
Lower Low – Are we seeing a down trend?
Higher High – Price rallies above the previous low and the previous lower high. Only big buying pressure could cause that.
Higher Low – Price reversal confirmed before a period of consecutive higher highs and higher lows.
There will often be a that forms after the LL and before the HH. This represents some great buying opportunities. I will look to enter these trades when price returns to the after I have seen the HH.
I look for the above pattern at or near higher timeframe demand.