Reversal Signs (Reversal Trading)
It is important to distinguish that the market is only corrective or even starting to reverse the direction of the trend, so that it does not occur in a long floating minus and makes trading psychology depressed. There are two types of price changes that are usually considered to mark the best forex trading opportunities, namely reversals and retracements. Unfortunately, many traders do not understand what reversal and retracement are, how they are conceptualized, and how to recognize them when trading.
Reversal is a change in price trend that is permanent, can last in the long term (more than a week), and involves a fundamental change in the outlook of a currency. Reversal can mean a change in the bearish trend to bullish, or a change in the bullish trend to bearish. Most importantly, this trend change lasts continuously for a long time and can be seen clearly on the daily time frame or higher.
Usually, a reversal situation can be recognized in several ways:
1. Visually identify the existing candle structure (will find the dominant direction) trend up, trend down, sideways
2. trendline (trend line)
3. a price that always penetrates the last peak or valley
4. recognize chart patterns or reversal patterns (double top and double bottom)
5. Technically, the price was unable to break through certain psychological levels which also have the status of an important resistance level.
6. Technically, certain candlestick patterns have a big impact (triple candlestick pattern).
7. Fundamentally, an event has occurred or news has been released that changes the economic outlook of the country of origin of the relevant currency in the long term.
The reversal moment offers the most optimal forex trading advantage. Unfortunately, this moment is quite difficult to detect. But, don't worry, traders can still take trading opportunities when retracements occur which are much more common and relatively easy to spot.
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