Saturday, January 31, 2009

Reversal Chart Lesson

Hey Guys,
There a many ways to look at the footprint charts to get an inside look at the market. If you have been following this blog, you'll know that I like to use several different periodicities and chart types.

The ones I use are not better than others, they are just the one's I learned and feel comfortable with. Today's lesson is on Reversal Charts. I use a 5 tick Reversal Chart, I know others using a 6 tick. I have found these types of charts very helpful, for a number of reasons. They are also confusing to most people when they first try to get a handle on them. They certainly were for me.

So, I thought a lesson would be in order. I first learned about Reversal Charts from Bill Duryea at IOAMT ( He and Jackie (his co-teacher) are masters of them. I recommend their services (training room and courses) highly.

Reversal Charts are based on Point and Figure Charts. Here's how they work. As a bar goes up, reaches a high, and then pullbacks x number of ticks (we'll use 5 ticks in these examples) - a new bar is formed. This is a reversal from the upward movement. The reversal bar may continue to go up or it may go down. It can have positive or negative delta and be an up or down bar. The quality of this reversal bar gives us feedback on the market's micro condition.

When we get a pullback from a high or a low on that reversal bar of 5 ticks - a new bar is formed.

Since we started this example with an up bar we'll denote this as a green marker. You can see how this looks on the included chart. The reversal bar I denote with a red marker (even though it can go up or down), because it is a reversal of the up bar.

The next bar following the reversal bar is marked with green. If the bar tries to go up, we compare the buying of this bar to the first up bar (in the example). Is the buying as strong? Is it able to make a new high? Does it go 1 tick higher on weak volume and fail - closing on the low. These are all things we look at and consider.

The upbars are mainly compared to other up bars rather than to the reversal bars. The reverse of all this holds true when the market is moving down.

These bars give us tons of information which I will point out in my charts. However, one truly important use of them is when we are in a trade. Have you ever gotten out of a trade too early? Silly question - we all have. When we are in a trade and a big bar is forming, there is not lots of good reasons to exit until we form a reversal bar.

And, not any reversal bar. Remember, a reversal bar may be bullish or bearish in nature. So, if the market is moving down and we get a big, long bar going many points - Reversal Charts help us to stay in the trade. If we get a reversal bar with negative delta the down move is likely to continue. If the reversal bar is mildly positive, its less clear. If the reversal bar is quite positive in nature, you might want to exit or take some off.

I hope this makes sense. Putting this in words is rather precarious. If this is unclear, read it again and take a closer look at my charts. Market Delta footprints are not the easiest things to master, but they are a tool that gives unparalleled Market Information.

Hope this helps,



  1. Great article MG. I was just wondering, how do you get a 5 tick reversal chart in the Footprint. (in the classic footprint you can choose it) on the pane version I only see delta reversal.


  2. Seekingtheta,
    Glad you enjoyed the article. In the new multipane charts, there is a trick. You have to choose Point and Figure, then 5 or 6 in the box.


  3. How to you get the reversal bar colors at the top of the 5rev chart (the alternating red and green color, the one you blocked off the the red border).

  4. Dan,
    You have to have the Pro Version. If so, here is a link to the definition. Copy it. Then File/Import Definition from Clipboard.

    Hope this helps,