Take note of the way that price approaches an S/R level.
The more that price has to stretch to reach it, the better.
This is a time to FOCUS.
Because if this move stalls, unable to attract sufficient buying to continue higher, it can potentially set up a very nice TST/BOF trade for reversion to the mean, or even complete reversal.
Like a rubber band stretched and released.
We discussed this concept recently in the following article – https://yourtradingcoach.com/trading-process-and-strategy/when-price-stretches-to-reach-the-level/
But it happens over and over again, so let’s look at another example. Similar in concept but slightly different in how it sets up.
Higher timeframe context first:
Here are three features that easily attract my attention:
Could the market continue higher from here?
Absolutely. If the break can hold and if these prices can attract sufficient new buying, the market could push higher targeting the prior day’s high. My job will be to recognise this and seek BPB/PB opportunity LONG.
But given the context, I’m keen to see the opposite occur.
I’m keen to see a lack of buying pressure, trapping any late longs into a losing position and fuelling a potential snap back lower for reversion to the mean. In other words, a BOF setup SHORT.
Again… think of a rubber band stretched and released.
Let’s see what follows. Does the break of the overnight high bring in new buying pressure? Or has the move exhausted itself and potentially trapped any late longs?
The more that price has to stretch to reach an S/R level, the better.
This is without doubt one of the best ways I like to see price set up for TST/BOF reversal from a support or resistance.