How to Recognize a Candle Will Be a Reversal or Correction
Forex traders generally like high volatility, regardless of the currency pair. This shows that from their trading experience, following the direction of the trend or becoming a trend follower is indeed profitable, and the trend following strategy is reliable. So, in order to be able to follow the trend direction correctly, the trader must be able to identify a situation where there will be a trend forwarding, or vice versa there will be a trend reversal (trend reversal).
Correction or reversal movements can actually be identified from the start, namely by reading the candlestick or price action. Candlestick formations that are commonly used to detect correction or reversal movements are doji candles, tweezer top or bottom, and inside bar formations. An example of a correction is when the price is in an uptrend, retreats for a while. continues to rise, and vice versa. A corrected currency can be seen when it is on the rise and then stops, weakens for a while and then resumes its trend again. Technically, it can be seen with the stochastic oscillator pattern. But of course in this case it must be in harmony with the time frame used.
A situation is called trending when many traders trade with entries in the same particular position (buy or sell). This situation can be corrected if some traders take their profits (profit taking), and if many traders close their positions to open opposite positions, a trend reversal or trend reversal occurs. However, it is not easy to identify corrections and trend reversals.
Continued correction will cause a reversal if it breaks the support or resistance level. So predicting a state of correction will end (return to the original trend) or continue (trend reversal) is rather difficult. What is relatively easy is to identify trend continuation. If the uptrend continues, we enter buy, and vice versa if the downtrend continues, we enter sell.
Traders certainly know that many traders use moving average indicators to identify the direction of the trend, especially the 200-day SMA for the long-term trend. The more the price moves above the SMA indicator, the stronger the trend. According to the rules, a strong uptrend occurs when higher high levels (current high levels are higher than before) and higher lows (current low levels are higher than before), and vice versa for downtrends, lower highs and lower lows occur.
The correction occurred temporarily, after profit-taking traders returned to their original positions. If the correction continues, a trend reversal will likely occur. Many traders are wrong in anticipating a correction by entering in the opposite position because they think there will be a trend reversal.
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