U-turn strategy is based on a very fast reversal pattern. Keep in mind that you need a strong trending market for this set up to work. Look for trend lines that slope above 20 per cent either up or down. Always remember to trade with the trend, especially setups that require momentum in the direction of the trend. The stock pulls away from the trend and appears like it’s breaking down for a short period of time. Quickly the stock reverses as buying comes in and closes near the upper range of the trading day.
This is the type of set up you should be looking for on your daily charts after the close each day. The U-Turn Strategy is one of the best short term trading strategies for quick profits and easy management. It is a very short-term trade that’s designed to take advantage of stocks and other markets that are temporarily out of balance.
At first, it looks like the market is suddenly breaking out. However, as the day continues the market quickly changes direction and closes back in line with the main trend.
A signal to open a trading position can be detected from the inability of the candle to close. A candle can touch the level with its shadow or body. On the level of support or resistance with the shadow of a candle or closing the candle in front of the level, a signal also appears that the price is unable to overcome it. Wait for the next candle to confirm the signal accuracy: the candle should be directed in the opposite direction.
Algorithm of U-Turn Strategy:
- The candle cannot close behind the level. It may touch it with the shadow or body of the candle;
- Wait for the confirmation of the price rebound from the level of the second candle;
- Buy an option in the direction of the rebound.
Put after a rebound from a resistance level
Call after price rebound from a support level
Call after price rebound from a support level
Call after a rebound from the bullish trend
We want to remind traders that among the many levels of support and resistance on the chart, only levels confirmed by the price influence the price. We recommend checking the strength of a level: you need to look at the history of quotes and check how often the price lingered near this level or turned around. If the historical data shows that the price never stayed at the level, then it is a false or very unlikely signal.
One Important word of caution, do not take signals that occur after the first 2 hours of the trading day. This is a day trade so you want to make sure you have plenty of time for the trade to develop and achieve some degree of profit.
Often times traders forget to cancel their open orders and get filled accidentally, prevent costly mistakes and keep track of all your open orders.
The U-Turn Strategy is a short term deviation from the main trend. The set up occurs quickly and disappear just as quick so you have to find them and take advantage of them as soon as they appear.
Use either stop orders or market orders to enter the trade and never ever enter this type of trade if the entry has not been triggered during the first two hours of the trading day.
Hold the position till the end of the trading day and monitor the position using 15-minute charts if you are trading stocks.
If you are trading futures or foreign currency you can use 5-minute charts instead.
