Nikkei 225 Reversal Set Up – Strategy Update


I posted details of a potential reversal set up in the Japanese index. For details see my blog of Friday 18 Feb.

This set up was triggered yesterday when the market closed lower, leaving Monday’s high as a trend peak at the Fib cluster zone

The charts below detail one approach to trading strategy for this trade

This strategy is on the advanced side and assumes a working knowledge of market structures and Fibonacci projections. However, it’s all pretty straight forward when you get the hang of it. We’ll also have a mix with more straight forward strategies on the blog as well

This strategy assumes entry on the first close below the candle that makes the peak at or close to the Fib cluster zone. When there is a big move like yesterday’s one and it becomes obvious earlier in the day that the close will be under this low, you may have a strategy to use shorter time frame charts to look for opportunities to enter prior to the close where the market looks weak.

The initial stop here is placed just behind the latest trend peak.

This set up assumes the possibility of a significant move down following the end of a 5 swing up trend. If the downtrend can’t overlap below the peak at 3, there is a real possibility that the impulsive up trend remains intact and the strategy is wrong

So if price rejects the support shown by the dashed horizontal line at around 10480, the stop can be tightened to at least the entry price.

The stop would also be moved if the down trend being followed begins to overlap through itself. We want the trend being followed to be strong and impulsive

A scaled profit objective is used where half the position is closed at the first target. This target is set at the level of a 50% retracement of the whole 5 swing move. A small price filter can be used in case price gets close to this level without actually hitting it.

The 2nd target is left undecided until any downtrend that emerges starts to develop some structure and allow some projection of significant levels

One possibility though is shown in the weekly chart below. This outlines how a large ABC correction of the whole rally from August 08 to April last year might look. This is a huge call and there is a very long way to go before this could be looked upon as a serious possibility. Even so it pays to have a big picture mud map of possibilities in mind for these set ups



About Ric Spooner

Over 30 years market experience - professional trader, broker, director
This entry was posted in Market, Shares, Stocks, Trading. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s