Overview
BigShort trader Zedamonator's “3 Bar Reversal” is a price action strategy enhanced by BigShort’s Momo "Shadow Bars" indicator, designed to identify high-probability entries by anticipating retail trader stop-loss hunts by market makers. It works best in combination with overall trend awareness, offering opportunities both with and counter to prevailing trends.
The deepest discussion of this trade was on the Discord Friday February 28th, 2025. Link to that discussion (Subscribers only).
How to Trade the 3 Bar Reversal
Identify the Trend
Determine if the market is in a clear bullish, bearish, or range-bound state.
Strategy effectiveness:
Best (A+ Setup): Trading in the direction of the existing trend after a pullback.
Moderate (B/C Setup): Counter-trend reversals, timing pullbacks.
Watch Momo's Shadow Bars
Shadow Bars reveal the behavior of retail traders (“MOMO”) versus institutional traders (“Smart Money” & “Market Makers”).
Look for Shadow Bars pointing opposite the direction you want to trade (note: these are reversed after a long break or weekend):
Bullish trend: Look for down-pointing Shadow Bars to enter longs.
Bearish trend: Look for up-pointing Shadow Bars to enter shorts.
Spotting the 3 Bar Reversal Pattern
Requires at least two consecutive bars in the same direction (e.g., two green bars in an uptrend).
The third bar must break below the low of the previous green bar (in an uptrend) or above the high of the previous red bar (in a downtrend).
Example (Uptrend short reversal):
Bar 1: Green bullish candle.
Bar 2: Green bullish candle.
Bar 3: Red candle breaks below Bar 2’s low.
Entry Criteria (for optimal trade execution)
Confirm these conditions before entry:
Break of prior bar’s low/high: Clearly breaking previous bar’s extreme signals reversal.
Shadow Bar pointing toward retail traders’ direction: Indicates retail traders are trapped, setting up a stop-loss run.
Enter at the break point: Execute trade precisely as the previous bar’s low/high is broken.
Trade Management
Ideal for quick scalps; lock in profits promptly. Zeda says in the Discord "Once it is broken then we short and cover whenever you want".
Particularly effective on range days but still viable during trending markets (use EMA 20 as additional confirmation for trend-following trades).
In Zeda's own words and screenshots
Zeda shared these two images of the same move, then explained below (Subscribers only can access this part of the discord):
"Here is a step by step process,
1.) Market is going up...lots of green bars
2.) Up shadow bars appear in BS meaning momo is hopping in on the trend.
3.) Decide we want to short.
4.) The first purple horizontal line is where we want to short because it means the low of the last green candle gets broken (also where retail might put their trailing stop)
5.) Once it is broken then we short and cover whenever you want. Sometimes you can hold for a long time or a down shadow bar but it's up to you. I usually just scalp but it also depends on if it's a range/trend day.
And another clear example, he provides:
Advanced Thoughts and Tips from Zeda
Don’t rely solely on Shadow Bars; always confirm with price action.
Wait patiently for the 3 bar reversal to confirm entries clearly instead of immediately jumping in on Shadow Bars.
This strategy focuses on aligning your trade with the institutional “winning team,” increasing probabilities by capitalizing on retail traders’ predictable mistakes.
To avoid fake-outs, consider briefly checking a higher timeframe (e.g., 15-minute) for additional confirmation.
Ideal Use Cases
Futures trading (ES/MES) and highly liquid assets like SPY.
Scalping and short-term trades aiming for high accuracy and lower-risk setups.