How to Know Retracement or Reversal in Trading
In forex trading, there are terms reversal and retracement that traders may often see or hear. Knowing the difference between retracement and reversal will be very beneficial to look for profit opportunities in the market.
Moment reversal can provide optimal profits in forex trading. However, reversal and retracement are quite difficult to distinguish. Reversal is a change or reversal of the price trend because it is no longer able to continue the current trend. A retracement is a price movement that goes against the trend in a short period of time. The reversal moment lasts in the long term, it can last several weeks or months. In other words, a reversal is a change from a bearish trend to a bullish one or a long-lasting bullish to a bearish trend change. Meanwhile, the bearish retracement will occur in the middle of a bullish trend and is temporary, while the bullish retracement will occur in the middle of a bearish trend and is temporary. This moment is often used by traders who have a scalping trading style.
A trend can be said to be a reversal if the price breaks towards the support or resistance and the trend has the same shape between the daily time frame or higher. Usually before a change or reversal occurs, it begins with sideways or consolidating market conditions. Here are the signs of reversals and retracements:
Signs of Reversal
In general, here are the recognizable signs of reversal:
1. The price was unable to penetrate the important resistance level.
2. There has been an event or has been released an important news that can affect the economy of a country and have a long-term impact.
3. Certain candle patterns are formed that have a large impact, some examples are the Morning Star, Evening Star, Three Black Crows, Three Inside Up, Three Inside Down, and others.
Signs of Retracement
In general, there are several signs of a retracement, namely:
1. The occurrence of profit-taking by some traders. However, these traders are only a minority. Meanwhile, the majority traders maintain their positions because there is no news or events that indicate that the trend will reverse direction, so the trend will return to its origin when the correction caused by profit taking by some minority traders has been completed.
2. The price is near a certain psychological level, but that psychological level is not an important resistance level in the long term.
3. Does not have a specific form of candle pattern and price pattern or often also has a light impact candle pattern, such as Single or Double Candlestick Pattern
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