What is the Reversal Cloud?
The Reversal Cloud is likened to Bollinger Bands. These bands and Channels that were developed help paint a picture of what the market may do. The Reversal cloud helps indicate when a market is showing oversold or overbought signs and where it may potentially reverse. Some of the calculations to create these bands entail derivatives of averages. This then helps us pin point Reversal Patterns.
We can see in the below screenshot highlighted examples of when the market/candles reach the top or bottom of the Cloud. We normally can expect a pullback or a reversal eventually. We can see in the below examples that a pullback or a reversal occurred eventually.
The Reversal Cloud works on every time frame but for the most entries use lower timeframes.
As the market/candles move up and down and push into the Upper and lower bands in the Reversal Cloud you can begin to expect an eventual pullback or reversal. The strongest pullbacks and reversal occur once the last band of the Reversal is Cloud is touched.