Similarities between Trend Reversals and Driving a Car

4 thg 1, 2023

Happy New Year🎆, Traders👋

On this post, I'm going to share the similarities between trend reversals and driving a car.

This post would help you if;

-You are struggling with trend reversals
-You tend to make early entries
e.g. you stopped out and the market moves in your favorable way


Driving cars
For those who drive cars, these are obvious things, but let me just explain what you are gonna do when you turn the corner.
Take a look at the left side of the image drawing below.





When you make a turn, you;

(1) Gradually slow down as you approach a corner
(2) Turn the corner at the lowest speed
(3) Accelerate as you exit the corner

You do them naturally without thinking anything if you have a driver license.


Now, let’s take a look at what is gonna happen when trends reverse.


Trend reversals
Look at the right side of the chart above. This illustrates when a downtrend reverses to an uptrend.


(1) Price going down
(2) Stop
(3) Price going up


(1)
When a bear market or downtrend is in progress, prices keep going down, making lower highs and lower lows. At the beginning of the downtrend, it usually starts with a sharp slope, but as the prices go down, the speed also gets slow and it becomes a gentle decline.

(2)
When a downtrend comes to the end, it;
-stops making lower lows
-creates a equal low (aka W bottom)
-make a slightly higher low(this is also another formation of W bottom)
-becomes a range
These are the signs when downtrends end.

(3)
After the market makes a stop at the bottom, uptrends starts, usually breaking a range and/or creating a new high. The speed of the trend gradually accelerates as if a car exits from a corner.


It looks super simple, easy and obvious in writing, however, in reality, many beginner traders and/or traders who are struggling with trend reversals tend to buy at (1).

Why?

The reason is simple. They want the bottom.

When greed dominates your emotion, these things do not exist in your brains anymore.
You know what happens then?
They got stopped out and the market moves as you expect.
This is like you are approaching a corner without reducing speed and end up with falling off a cliff.


Cars cannot immediately stop, neither do trends
Just like cars cannot stop(or make a turn) suddenly, trends do not change that easily.
You would be able to eliminate unnecessary entries and/or FOMO entries, simply asking these questions to yourself.

“Isn’t it too late to buy at least when I see the market makes a stop?”