Massimiliano Scorpio's Reversal Zones Strategy

Hello, fellow forex traders!

The topic being published will be of interest to adherents of indicator-free analysis and the Price Action tactic. Beginners should also pay attention to the article, after reading which they will receive a kind of "weapon of retribution" used for intraday trading.

The strategy is based on a pattern discovered by Italian technical analyst and senior bank trader Massimiliano Scorpio and called "key reversal zones." How effective this pattern is, we will learn from this material.

The main area of its application is the bond and options markets. The Price Action pattern was noticed by chance when analyzing the behavior of underlying assets, and then tested in the stock market, where it showed a 70% probability of positive signal follow-through.

The only downside of this strategy is the rare appearance of such a price behavior situation in the markets: on daily candles it can be observed no more than 15-20 times a year. However, it is not difficult to learn and even harder to forget. To understand why, it is enough to spend 5 minutes and grasp the essence of the strategy.

On the daily candle chart, the reversal zone for opening a buy position (long) consists of two rising candles, the last of which has a tail below the low of the first and a closing price above the closing price of the previous candle.

The short position means that a sale may be considered if two falling candles showed closing prices one below the other, but at the same time the last candle set a high above the previous one.

The final condition for the formation of this pattern lies within the day: the daily low/high of the previous candle must be broken before the start of the American session. It is desirable that before the release of the first "American" news, the current price of the currency pair should be:

However, the growth had fundamental reasons known to insiders, related to statistics from the USA. They stop the decline, accumulate the position in the second half of the day, using for this the breakout of lows to gather as large a volume of orders as possible. The reason for the formation of a wave of buying or selling on breakouts of extremes and the strategy for buying it back was described in detail in the article about Swing Failure Pattern.

The situation for a rising trend is mirror-like: a falling candle appears, mistakenly taken for a corrective one, this becomes clear after the high of the previous day is broken, but the evening session radically reverses the currency pair rate, closing below the opening of the previous day.

It happens that a pattern of the two described falling or rising candles occurs during a prolonged strong trend. In such cases, traders often place stops slightly above the high or low of the closed candle of the previous day.

Market makers initiate an intraday corrective movement with a mandatory retest of extreme zones. The trader is knocked out of the market by evening so that, sitting without a position, he sees how the rate returns to the same direction.  

If you traded intraday and, having failed to guess the direction, caught a stop or were knocked out of a medium-term trade after a treacherous reversal, there is an opportunity to "get retribution" thanks to the observations of Massimiliano Scorpio.

Market makersintraday, a corrective movement is initiated with a mandatory retest of extreme zones.Traderknocks him out of the market by the evening, so that he, sitting without a position, can see how the rate returns to the same direction.  

The above-described pattern receives final confirmation at the end of the day at the close of the daily session. In the comments, people often ask whether it can be earlier than 24-00 Moscow time. In fact, everything is already clear by 21-00 (22-00 in winter), if there is no news in the economic calendar. Only oil inventory data or the "news from the fields" of the Fed meeting on the rate come out that late.

If all the points are fulfilled, the trader enters buys at market at the end of the day. Carrying the position over to the next day, we set a take-profit at the high of the previous day, and the stop at the low.

To enter a short, we check the following conditions:

If all points are completed,traderincluded in market purchases at the end of the day. When transferring a position to the next day, we settake profitat the previous day's high, andstopat a minimum.

As described above, entry into a long or short is carried out on the intraday timeframe at the end of the session.

The closing price is lower than the opening of the previous day, but the session is not closed at the floor.

However, the reversal zones strategy requires dynamic stop-loss management because of the disproportionality of potential profit and loss. 

Despite the fairly high rates of positive pattern follow-through, the author notes that rare stop triggerings "eat up" up to 50% of the profit. Large losses can be avoided by increasing the size of the profit.

Massimiliano Scorpio did not give recommendations onmoney management. Trader, who has excellent skills in working with options, has the ability to “transform” a position into a complex system where you can dynamically manage the size of the futurelossAndprofits.

The M. Scorpio pattern is further proof that Price Action setups with a high degree of probability can predict the future trend. The trader does not need to install indicators on the chart, select settings for them, or look for additional false-signal filters. The described trading system, regardless of the trend direction, needs only a certain position of two candles to make an intraday trade.

A similar analysis system using daily-format candles for intraday trading was used by many famous traders, in particular Jesse Livermore, Linda Raschke, Larry Williams, etc. Its advantage lies in the unambiguity of signal definition and a sufficient period of time for its analysis and evaluation.

Respectfully, Ivan Petrov
Tlap.io

In calculationtrading lotapply standard recommendations, allow no more than 1-2% losses per transaction. Position size depending on sizedepositcan be calculated in our service using a specialcalculator.

The M. Scorpio pattern is another proof that Price Action setups can predict the future trend with a high degree of probability.Traderno need to set on a scheduleindicators, select settings for them, look for additionalfiltersfalse signals. Describedtrading system, regardless of the direction of the trend, only a certain position of two candles is enough to make an intraday trade.

A similar analysis system using daily format candles for intraday trading was used by many famous traders, in particular,Jesse Livermore, Linda Raschke, Larry Williamsetc. Its advantage is the unambiguous definition of the signal and a sufficient period of time for its analysis and evaluation.

Best regards, Ivan Petrov
Tlap.io