V-shaped reversal is a relatively common and extremely powerful reversal pattern in trading, which is commonly used in technical analysis. It often occurs when the market fluctuates. There is only one low or high at the bottom or top of the price, and then the original trend is changed. The price action shows dramatic changes in the opposite direction.
It is very common in all kinds of investment products as it has a strong upward signal. Its appearance is generally after a long period of decline trend in the Candlestick, after a long term of some severe negative situations, and when the market has finally welcomed some good news. At this time, the trend turns the direction to the upward trend and lasts for a considerable duration. Therefore, a V shape is formed on the Candlestick chart.
Features of V-shaped reversal
1. It usually appears after the extreme market dump.
2. At the end of the rapid decline, the energy of the short side has been completely vented. At this time, the power to long the market has begun to accumulate. If the stock market is favorable, stocks (gold, futures, CFD, etc.) will quickly reverse and turn upwards. Quick responders swarmed in and quickly pushed up the price.
3. The recovery speed of V-shaped reversal is very fast, staying at the bottom for a very short time. Investors with slow response are easy to miss the entry point. If you judge the market outlook correctly, you can chase further and continue to buy, otherwise the opportunity is fleeting. As an investor in futures, these K-line patterns often appear on short-term K-lines, and timely judgement and market operation will bring a very good short-term benefit.
Signs of a V-shaped reversal
The appearance of V-shaped reversal generally has no prior signs, and is a formation out of control, so be careful when applying it. However, the potential for the trend to last after identification of the V-shaped reversal is quite amazing, and the achieved rise or fall can be huge. However, once the turning trend is formed, it is highly confirmable and has very important practical significance.
How to grasp the V-shaped reversal opportunity? Pay attention to the following points:
1. Rise and fall. Generally speaking, the greater the rise and fall in the short term, the stronger the momentum, and the stronger the possibility of a V-shaped reversal.
2. Price and volume cooperation. Positive V-shaped reversal trading volume should be significantly enlarged when the trend is changing, price and volume coordination is good, especially the enlargement of trading before and after the turning point.
Inverted V-shaped reversal has no mandatory requirements for trading volume, but before it turns, the trading volume will often increase sharply, which actually means that the strength of the bullish market has gradually become vanishing, and the buying power is weak.
3. Combine the medium and long-term moving averages for research and judgment. The moving average has a significant function of judging the trend movement. With the help of the 20-day, 30-day and 120-day moving average, the two big opportunities of V-shaped reversal can be grasped more accurately.
Generally, the 20-day moving average can be used. When the stock price breaks through the 20-day moving average for the first time, although it is not clear whether the V-shaped reversal can be established, it is an aggressive long or short signal. Once the stock price breaks through the 20-day moving average for the second time, the reversal can basically be confirmed. This is a steady long or short signal.
4. Stretching the positive V-shaped horizontal fluctuations is a better time to enter the market, which is both safe and effective. The stock price breaks through the 20-day moving average for the second time as a better short-term entry point. At the same time, the relative position of the horizontal fluctuation of stock prices is also very important.
For example, a sideways movement above the previous high indicates that the main force has a strong ability to control the order and strong upward momentum; if it fluctuates near the previous high, the upward momentum is relatively weak. In addition, the duration of the sideways is also very important. Generally speaking, the longer the sideways, the smaller the upward force.