The structure of the bullish reversal

I will describe some general principles. They could be found at every bottom of the market in different variations. As an example, I will use NZDUSD chart, the type of chart is uncommon, this is PnF chart. This type eliminates the noise, and (I hope so) the market principles appear in more clear details.

Well, let’s read the chart

1] This is Panic Selling Wave (or Column). It is characterized by acceleration of the speed of the falling (the decline looks dramatical, wide red bars). News often is negative. As a rule, price broke down some level of support. In this case – 0.558. The volume is extremely high (the market is abnormally active because of professional use broad activity to cover their shorts).

2] Technical bounce up toward 0.558. This level (where panic was started) now acts as the resistance.

3] A new attempt of bears to reach lower low. But look the volume (think about the volume as the effort of bears to push the price down). Volume decreases in comparison with the Panic volume. So, bears exhausted. In other words, big guys absorbed the flow of Panic selling, and the chart reveals the lack of Selling pressure.

4] The surge of demand. Very quick grow up. This is the strongest column in comparison with the previous ones. Bulls change the character of the market.

5] No supply – wave down on the small volume

6] Another fact of the dominance of bulls. The long-time (in comparison with the previous ones) up-wave which consists of small up-moves amid growing volume and down-moves amid declining volume. This is the bullish structure of the movement. 0.558 already broken out. It should act as the support due to those described signs of strength on the background.

7] Yeah, 50% pullback down toward the support and…

8] …quick reversal (bullish engulfment) on two columns (study the volume). The market became ready to struggle toward new highs.

Not surprisingly, we got the rally toward 0.588.

Thanks for reading. I hope, it was a useful post. Any questions? 


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