FOREX THEORY


How to Identify Reversals

Properly distinguishing between retracements and reversals can reduce the number of losing trades and even set you up with some winning trades.

Classifying a price movement as a retracement or a reversal is very important. It’s up there with paying taxes *cough*.

There are several key differences in distinguishing a temporary price change retracement from a long-term 
trend reversal. Here they are:


Retracements
Reversals
Usually occurs after huge price movements.
Can occur at anytime.
Short-term, short-lived reversal.
Long-term price movement
Fundamentals (i.e., the macroeconomic environment) don’t change.
Fundamentals DO change, which is usually the catalyst for the long-term reversal.
In an uptrend, buying interest is present, making it likely for price to rally. In a downtrend, selling interest is present, making it likely for price to decline.
In an uptrend, there is very little buying interest forcing the price to fall lower. In a downtrend, there is very little selling interest forcing the price to rise further.














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