Stop and Reverse is to re-enter a position in the opposite direction (re-entry) immediately after taking a profit or loss on a previously held position.
In the case of a buy position, a sell entry is made immediately after closing the position.
This is called “do-ten selling” in Japan, while do-ten buying is the opposite (the word “do-ten” is also used in this article).
There are two types of Stop and Reverse “closing a position immediately before closing”: closing at a profit and closing at a loss.
- The ideal is to “Stop and Reverse from profit,” but the difficulty is high
- Be careful about Stop and Reverse after a loss
- What are the situations in which Stop and Reverse is used in FX?
- Forex Trading Techniques Utilizing Stop and Reverse
- What is a “round-trip slap” that should be noted in do-ten?
- Origin of the term “Doten” (Stop and Reverse)
- Stop and Reverse (Doten)- Summary
The ideal is to “Stop and Reverse from profit,” but the difficulty is high
The ideal Stop and Reverse that everyone envisions would be a trade in which a do-ten entry is made after confirming the profit of the previous position, and the do-ten position also ends up confirming the profit.
This type of trade, in which profits are taken by selling and buying back and forth, is basically easy to execute in a range market.
However, this is a very difficult trade, and it is not recommended for beginners to take it easy, as they may receive a “round-trip slap” and suffer severe consequences.
Another common example of Stop and Reverse trading is to confirm that your position is in an overshoot and then stop and reverse the trade.
This is a trade where you ride the wave in the opposite direction when the overshooting price movement becomes an adjustment (reversal/reversal) from overshooting.
If the price action is not well judged or if you make a mistake, the strong momentum of the overshoot until that point will result in a sharp increase in unrealized losses.
Be careful about Stop and Reverse after a loss
In the case of Stop and Reverse after a loss, psychological resistance tends to be greater because in many cases the trader tends to make a 180-degree reversal of the market judgment made up to that point.
For many FX traders, even if Stop and Reverse is a rule-established technique, “Is it really safe to enter in the opposite direction?” Stop and Reverse is a situation in which the trader’s anxiety about whether or not it is safe to enter in the opposite direction precedes the trader’s anxiety about the situation.
If it is an opportunistic and emotional entry without any rules, it will be a more difficult trade.
Many forex traders tend to make “Stop and Reverse from loss” based on easy emotional judgment that “if it is not up, it must be down.
Stop and Reverse is an entry technique that requires great caution not only for novice Forex traders but also for many traders.
What are the situations in which Stop and Reverse is used in FX?
The explanation will proceed with several specific examples of Stop and Reverse.
Below, we will introduce both the case of “Stop and Reverse” after cutting losses and the case of “Stop and Reverse” after taking profits.
A case of Stop and Reverse after a loss on a position in the direction of a return within the range
A typical situation in which Stop and Reverse is used is a market situation where the rate has reached near the upper and lower bounds of the range in a range market.
The figure below shows the sequence of “Sell Entry – Stop Loss – Buy with Stop and Reverse” at the upper range resistance line.
The initial scenario here was for the rate to reverse at the resistance line and ride the trend of the price movement back into the range.
Therefore, we first took a sell position near the resistance line, which is the upper limit of the range.
If the rate reversed from the upper limit of the range and came down as expected, I would hold the position until the target line to take profit.
However, if the resistance line is broken out to the upside, there is a possibility that the rate will continue to rise.
Therefore, when we can judge that “the upper limit of the range has indeed been broken out,” we will loss and buy (Stop and Reverse).
In other words, after closing a sell position and cutting a small loss, we immediately make a buy entry.
In the case of the above chart, the sell position is closed just before the buy Stop and Reverse timing.
Since this is the timing when the high made by the breakout of the upper limit of the range is further renewed, we can judge that “the upper limit of the range has indeed been broken” at this point, so it is also a reasonable timing for a buy entry point at the original breakout.
This “Stop and Reverse” should be built in as a trading technique in advance, and should never be done based on the mood or emotion of the moment.
If it’s not down, it must be up! and emotionally make an easy Stop and Reverse trade, it may result in a “slap in the face” as already mentioned above.
A case of Stop and Reverse after taking profits in an overshooting trend situation
This case of Stop and Reverse is one of the frequent Stop and Reverse trades made by experienced discretionary traders.
Although it is strictly forbidden to imitate it easily, we introduce it here as an example.
Overshooting is when the exchange rate moves sharply upward and shows “excessive price movement.
Explanation 『オーバーシュート』の意味とトレード手法のアイデア
The background of the overshoot may be “a rush of large stop-losses and new buy orders (panic buying)” due to a breakout from the previous range, or a sudden and massive “real demand buy order,” but the exact reasons are not known.
In many cases, the price tends to start falling vigorously in the middle of the overshoot, followed by wild swings, or a “total reversal,” in which the price continues to fall all at once and returns to the rate before the overshoot.
The figure below shows a Stop and Reverse sell flow in a situation where an overshoot occurs while holding a buy position in the direction of the upper hourly trend.
Overshoots,” which are obviously sudden and extreme rises, tend to “start reversing significantly (wildly fluctuating)” or “stagnate in place” with a significant probability, except for unilateral rises due to currency intervention.
Therefore, once the price begins to reverse down significantly, we take profits when a price action or chart pattern appears that negates the possibility of another vigorous rise.
In the figure above, the price reversed sharply from the overshooting high and once stopped falling (forming a small local range), but then fell below the low line at the bottom, so we sold a do-ten” position.
Since there is a high probability that this do-ten-sell position will be caught in turbulence later on, there is no option but to hold on to it and take profits as soon as possible at the most recent line or price action.
Besides, there is a possibility that the market will rise vigorously again, so it is strictly forbidden to hesitate to cut losses.
To begin with, remember that a sell position in this situation is a countertrend trade against the trend direction of the upper time frame, so the longer the hold time is prolonged, the more disadvantageous it is.
The above is an example of a do-ten-sell entry immediately after the original buy position is taken into profit.
Again, this do-ten trade requires extensive discretionary trading experience and past chart verification, so please do not practice it easily and verify it thoroughly with your own hands.
Forex Trading Techniques Utilizing Stop and Reverse
From this point on, we will explain Doten in more detail, introducing specific forex trading methods of Doten that actually have an advantage.
Doten (breakaway) is effective in market conditions where “superior entry” has resulted in a loss
The first major premise to keep in mind is that market conditions in which an entry that has been identified as having a number of advantages has resulted in a loss can be a situation in which the effect of do-ten can be demonstrated.
The figure below shows a situation in which a “buy entry” was made at the time of a breakout from the upper end of the range.
This buy entry combines the following advantages
- The upper time leg is in an uptrend to triangle range situation (light green arrow price movement).
- In the time leg to trade (execution timeframe), the price has been in a range for a long period of time near the upper range limit of the upper time leg.
- A number of candles with long lower beards (pin bars) have appeared recently, and the downward breakout has failed (frequent damashi).
- An even smaller range formed near the upper limit of the range on the execution time chart and broke out of that upper limit with great vigor.
In such market conditions, a buy entry is a highly valid entry backed by a number of advantages.
Unfortunately, the candlestick that entered the buy position turned out to be a long upper whisker (pin bar), and the rate quickly returned to the original range.
The price movement after this was as follows.
- Immediately after the buy entry, the candlestick formed a long upper whisker.
- As it was, it broke below (broke out of) the lower boundary of the small range near the upper boundary of the range on the execution time chart.
- Even after the breakout of the lower limit of the small range, there was no reversal (the price movement of a proper reversal up) and the buying momentum was weak.
These price movements, either alone or in the aggregate of the three price movements, would normally be weak grounds for a sell entry on their own.
However, their significance and value lies in the fact that they occurred in a situation where the “buy entry backed by high superiority” was negated.
The fact that a situation in which the buy entry had a high advantage was denied is evidence of the existence of such a strong selling force.
And the subsequent price movement further reinforces that evidence.
For these reasons, closing at a loss and executing a do-ten-sell entry here is a powerful and effective trade with the advantage on our side.
In many cases, such do-ten (break-even) entries are incorporated as a technique in advanced discretionary trading based on past chart verifications and trading practice.
You may want to use this as a reference to develop your own method for superior do-ten entries.
In doing so, it will be easier to verify past charts and practice trading if you understand how the “setup and trigger” method is constructed.
Explanation What is a ‘setup’? What it means and how to create the key components of a forex trading method
What is a “round-trip slap” that should be noted in do-ten?
A round-trip slap is a situation in which, immediately after a loss on a position held, a new entry is made on the opposite side, but that position also loses money.
This is what is known as a “cry-baby” situation.
The 1-hour Eurodollar chart below shows a typical round-trip slap pattern of selling at a loss and buying at a loss.
A common cause of a round-trip slap in the forex market is to make an entry aiming for an easy breakout in a range market.
The chart above shows just such a situation, with a so-called “broadening formation,” in which the rate moves to the opposite side just as the highs and lows are renewed a little.
This kind of slap-and-slap is likely to occur in “highly volatile market conditions during price movements,” which at first glance may seem easy to trade.
Although the exchange rate moves in one direction for a short period of time, if you actually aim for a break in the price movement, you are likely to enter the market when it is fully extended.
This is usually the time when the traders with a keen eye tend to take profits, and there is a possibility that you will be forced to grab the high price.
In the event of a Broadening Formation, a chart point may have been reached on a larger time chart.
At such a chart point, an attack or defense is likely to occur, and the lower time frames may be volatile.
Since such chart points on the upper time axis can be identified in advance, we recommend that you learn multi-time frame analysis to avoid the tragedy of a round-trip slap and analyze charts from a broader perspective.
Origin of the term “Doten” (Stop and Reverse)
The word “do-ten” is slang in the Japanese market world, and is not a term with any basis in fact.
Therefore, there are many theories as to its origin, and there seems to be no fixed reason.
Among them, the following are some of the most commonly accepted origins.
- Since the sound of a person falling or overturning something is expressed as “doten,” it came to be used to mean “turning over” a position in the opposite direction.
- Later, the word “to turn over” came to be used to mean “to turn in the direction of a position in the middle of a move” (to todo).
Incidentally, in the old market world such as the stock market and commodity futures market, the term “do-ten” was used to refer to “taking a position in the opposite direction after cutting losses.
Today, however, as explained above, the term “do-ten” has come to include “re-entering the market after taking profits in order to ride out the reversal of the market direction.
Stop and Reverse (Doten)- Summary
Stop and Reverse is to re-enter a position in the opposite direction (re-entry) immediately after taking a profit or loss on a previous position.
Stop and Reverse is important to have a “superior trading rule” that has been established in advance by carefully examining past charts.
“Doten” is a dangerous trade that can easily lead to a “round-trip slap” and cause large losses in a short period of time, so it must be avoided by setting a cool-down time for entry after a loss.
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