There is a great difference between retracement and price reversal. Retracement is referred to as the small movement in the price against the major trend. On the other hand, price reversal means you have a newly formed market trend and the market is not going to respect the past trend. Having a clear knowledge of
There is a great difference between retracement and price reversal. Retracement is referred to as the small movement in the price against the major trend. On the other hand, price reversal means you have a newly formed market trend and the market is not going to respect the past trend. Having a clear knowledge of these factors is crucial to your success. The inexperienced Singaporean traders often consider the major retracement as trend change and start executing trades against the trend. Eventually, they lose huge amounts of money and blame the market. Those who are having a tough time working out the difference between retracement and reversal should read this article very carefully.
Retracement in price
The best way to identify the major retracement is to use Fibonacci retracement tools. There are three important retracement levels in the standard Fibonacci tools. These are 38.2%, 50% and 61.8% retracement level. For a bearish trend, the market is considered to be in a downtrend as long as the price trades below the 61.8% retracement zone. On the other hand, if the price trades above the 61.8% retracement zone in an uptrend, any downward movement should be considered as price retracement. You must use the Fibonacci retracement tool in the higher time frame or else you will not be able to distinguish between retracement and reversal.
Use of chart pattern
A chart pattern trading strategy is an excellent way to find the key reversal in the Forex trading industry. Those who have extensive experience in chart pattern trading systems make a huge profit by trading the major reversal. For instance, the use of a head and shoulder pattern can help you to spot the end of an uptrend. Right after the break of the neckline you can execute short orders and make a profit by riding the bearish rally. So, how do we learn to chart pattern trading strategy? The expert suggests using the demo account offered by Saxo since they offer premium tools to develop chart pattern trading techniques.
High and low impact news
To make your life better you must trade the market with confidence. For that, you have to learn the difference between high and low impact news. If the price starts to trade against the major trend due to the release of low impact news data, you consider the price movement as a retracement. If the price starts to trade against the major trend due to the major announcement or news release, it should be considered as a trend reversal signal. Though you will have a tough time analyzing the news data with proper devotion, you can easily develop these skills.
Assess the sentiment of the market
Sentiment analysis is very crucial to find the key retracement and reversal. There is no way you can learn sentiment analysis by reading books and articles. This is something which you will develop over the period by trading the market. It’s more like experience by which you can predict the potential price movement of a certain asset. Seek help from the successful traders in the Forex market and they will give you more detailed information regarding sentiment analysis in the Forex market.
Use the trend line tools
Trend line tools are one of the most effective ways to determine whether the price is trending or going through major reversal. To find a valid trend line, you need to connect the higher highs or higher lows. Though this will be a little bit hard for the naïve traders you are welcome to develop your skills by using the demo account. There is no reason to risk your real money while learning the key difference between retracement and reversal. Focus on proper education and try to improve your skills by utilizing the demo trading environment. Once you feel confident start your trading career with real money.