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2007issue C061-2

Failed-break slingshot reversal rules

A slingshot reversal is a break of a watched support or resistance that fails to hold, after which price reverses back through the broken level. The documented rule waits for a 10-point confirmation distance, then uses a reclaim stop entry, a stop beyond the failed-break extreme, and a take-profit equal to three times the potential loss.

  • A slingshot reversal is a break of major support or resistance that fails to hold, after which price reverses back through the broken level.
  • The documented entry waits until price trades 10 points beyond the watched level, then places a reclaim stop entry 10 pips back on the opposite side of that level.
  • Once filled, the illustrated protective stop sits five pips beyond the failed-break extreme, and the take-profit is three times that potential loss, set before the position is held.
  • After a failed downside break, the original support is treated as support if later revisited. In the illustrated Australian-dollar sequence that level held and price did not retest the breakout low.
Entries in this reading3 entries
Current trackRisk-reward ratio78 readingsBreakout confirmation205 readingsRule-based entry292 readings

What counts as a slingshot reversal

A slingshot reversal is a break of major support or resistance that fails to hold, after which price reverses back through the broken level. The same failed-break structure is described for broken resistance that reverses back below the level.

The watched level is a support or resistance many participants are already discussing before the break occurs. The concepts are treated as transferable to other markets if entry and exit distances are adjusted.

How the documented entry and exit are specified

The documented entry waits until price trades 10 points beyond the watched level. That confirmation distance must print before a reverse-side entry order is armed.

The reclaim stop entry is a stop order placed 10 pips back on the opposite side of the watched level, so a position opens only if the failed break is being reversed.

Once filled, the illustrated protective stop sits five pips beyond the extreme printed during the failed break. That break extreme stop is a short fixed distance beyond the low or high of the failed break.

The take-profit is computed by multiplying the potential loss by three. That pre-set reward multiple produces a 3-to-1 risk-reward ratio before the position is held.

Why a failed crowded break can reverse

The stated rationale is a positioning flush: a break of a crowded technical level forces existing longs to exit and attracts new shorts, so a failed hold can leave those shorts poorly positioned.

What the hourly Australian-dollar sequence shows

The 2006 hourly Australian-dollar case traces a multi-day range, a downside break of the lower boundary, a rapid reclaim, a later topside break, and a later return toward the old support.

After a failed downside break, the original support is treated as support if later revisited. In the illustrated sequence that level held and price did not retest the breakout low.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
14 of 27 in the Risk-reward ratio track
20071-11 pp.Next on Risk-reward ratioA system-management template that sets the stop and the required reward before entryMoney management calculates trade size and the loss allowed if the trade fails, while trade management covers the rules applied before and after a position is open.
All readings on this track · 27 readings
  1. 1987Precommit the stop and require a surplus payoff
  2. 1987When open losses overwrite precommitted exit rules
  3. 1991Ranking month-end holds with risk-reward and stops
  4. 1994Evaluating percentage profit exits on trend-following averages
  5. 2001Construct reward to risk before entry
  6. 2003A pre-trade readiness checklist for entry, abstention, and risk
  7. 2003Evaluating out-of-the-money strikes with saddle premiums and implied volatility
  8. 2004A critique of one-procedure trading decisions
  9. 2004Mechanical stops leak intent and misprice losses
  10. 2004Implied-volatility premium on rate indexes
  11. 2006Keep the stop that authorized the entry
  12. 2006Bound the loss with a risk-to-reward filter before entry
  13. 2007Audit the operator before abandoning a system
  14. 2007Failed-break slingshot reversal rules
  15. 2007A system-management template that sets the stop and the required reward before entry
  16. 2007Construct a pre-trade style envelope for entries and skips
  17. 2008Systems that skip the three decision gates
  18. 2010Four-gate veto before trend entries
  19. 2012Construct a trading plan as one written procedure
  20. 2012Forex stops and reward targets by quote increment
  21. 2013The average directional index as a lookback cluster and a risk-reward bound
  22. 2014A three-step worksheet for VIX futures tick value and low-vol risk-reward
  23. 2014Binary option premia, fees, and pre-expiry risk-reward
  24. 2015Selling far out-of-the-money commodity option premium as a forgiving timing case
  25. 2016Prepaid option spreads that bound range-day risk and reward
  26. 2016Pre-trade risk-reward versus instinctive exits
  27. 2020Bounding a short-dated option spread with a stop, a gap remainder, and a credit exit
By fieldEntry and exit rules327 readingsBy year2007144 readings
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