Reversal trading (RT)
Reversal Trading (RT) is a Gunbot strategy that allows traders to continue generating profits even when asset prices are on a downward trend after a purchase. The primary concept behind RT is to leverage the invested base currency to amass more units of the quote currency when the prices decline. By utilizing RT, traders can accumulate assets until the prices rise enough to sell for an overall gain, even if the market moves downward or sideways at a lower level than the initial purchase.
All trading fees incurred during Reversal Trading are taken into account.
Please note that this example has been intentionally simplified. Prices don't need to decrease continuously for RT to effectively accumulate.
Implementing Reversal Trading can be difficult both for setup and understanding purposes. It's recommended only for those who have a clear plan and can allocate a significant amount of time to learn about it and evaluate their results.
How it works
Reversal Trading initiates when the current price falls a specified percentage below the last purchased price, as determined by RT_GAIN. The initial bag is sold for base currency (RT_SELL), and the invested sum is allocated for repurchasing additional units as prices continue to fall. When the price decreases by a percentage set by RT_BUY_LEVEL, more quote currency is acquired (RT_BUY). Consequently, you possess a greater quantity of quote currency than initially purchased at a reduced cost per unit.
This process repeats itself as prices keep falling, allowing you to consistently accrue quote currency without injecting further capital. The necessary funds are reserved for the pair in Reversal Trading and cannot be employed by other pairs.
Utilizing TM_RT_SELL or the bb selling strategy makes it possible to position an RT_SELL at a higher rate than the previous RT_BUY, facilitating a swifter profitable exit point.
When prices reach an overall profitable level (EXIT POINT), a standard sell order is executed according to your strategy's sell criteria.
If prices rebound to the break-even point before an RT_BUY is executed, the initial bag will be repurchased to resume regular trading (RT_BUYBACK). Alternatively, you can establish a custom level for buying back quote with RT_BUY_UP_LEVEL.
Tips before using
- Avoid enabling Reversal Trading on existing bags that are significantly down unless you employ TM_RT_SELL! The choice to use Reversal Trading should ideally be made prior to starting trading on a pair, allowing the process to begin promptly.
- Reversal Trading calculations rely on your trade history; if your last sell order resulted in a loss (excluding stop-limit losses), Reversal Trading activates immediately upon enablement and persists until profitable termination of the RT cycle—even if you've disabled RT again.
- To avert undesired Reversal Trading, either ensure a profitable last sell order or set IGNORE_TRADES_BEFORE at a time following your last sell order at a loss. Use https://currentmillis.com/ to create the required timestamp. For added certainty, delete the pairs state JSON file after configuring IGNORE_TRADES_BEFORE.
- You can implement RT_MAXBAG_PROTECTION to set a maximum price difference between current price and average purchase price, preventing RT from initiating on pairs that have already lost substantial value.
Gunbot handles Reversal Trading in three distinct ways, depending on the main strategies employed for a pair. The selected buy strategy influences how RT_BUY orders are placed, while the sell strategy affects RT_SELL orders.
Optional steps in the flowcharts are only relevant when TM_RT_SELL and/or RT_TREND_ENABLED are enabled.
1. Basic RT flow
This flowchart illustrates the fundamental steps for Reversal Trading, without considering additional options like trailing or strategy-specific conditions.