The market rationale behind a reversal strategy
A reversal, also known as a trend reversal, happens when the direction of price shifts. These reversals usually unfold gradually over time rather than occurring suddenly. This gradual process occurs because significant investors require time to enter or exit positions.
If large investors were to place very large orders on the market all at once, depending on the market liquidity, they could cause significant price movements against them as other market participants would immediately follow their trades.
As a result, large investors must carefully plan and manage the execution of their orders to minimize the impact on the market. This may involve splitting orders into smaller tranches and executing them gradually over time, so as not to move prices too much and obtain a more favorable average price.
This careful management of order execution is crucial for the success of large investors’ operations and requires a deep understanding...
