How to Recognize Reversals and Retracements, Must Know

monarchcb.com - Reversal and Retracement, when we can manage both well so that the chances of gaining profits will continue to be large and losses can be minimized. And the ability to be able to divide price movements into reversal or retracement groups is a very important thing.

Furthermore, this is a partial comparison between a retracement that has a short duration and a reversal that has a long duration.

Retracement Introduction

We can use the Fibonacci retracement to determine whether the price is facing a retracement or not.

Looking back that the price will be at the Fibonacci retracement level will be around 38.2%, 50.0%, and 61.8% before resuming the strong trend.

And if the price moves and then penetrates below the Fibonacci retracement level, it is likely that the price will move to a reversal.

In this case (see the picture above), the price (traders) took a short break to take a breath at the 61.8% Fibonacci retracement level before continuing its uptrend movement. And after a while the price went back up and rested again at the 50.0% level before going even higher.

In addition to using Fibonacci retracements, we can also use pivot points to ensure a reversal.

When the price is in an uptrend, traders will look at the support S1, S2, S3 and wait for a breakout to occur. And when the price is in a downtrend, traders will look at resistances R1, R2, R3 and wait for a breakout to occur. And if there is a breakout until a reversal is likely to occur.

The last method used is trend lines, if the key trend can be broken, it is possible that a big reversal will occur.

And so that the opportunity to determine whether the price will face a reversal is greater so that we can combine trend lines with Japanese candlesticks which we have discussed earlier here.

It should be recognized that the methods above are not the only way to detect reversals and retracements. Maybe you want to have your own way to determine this kind of market situation after going through some forex trading guidance and experience or whatever it is. For that please practice a lot and don't forget to practice it after that.