Retracement or reversal: difference

Even if most of us will never admit it, most of us have been there: you are sitting before the screen carefully analyzing price action of your preferred pair and suddenly you spot a change.

Without much hesitation and as the captain of a ship about to crash with an iceberg, you close your existing positions and open new ones in a new direction. It looks right and it feels right. But moments later, disaster. The trend that you followed continues and you are now in the wrong side.

This scenario is not a strange one. It is a very common behavior among new traders and even experienced ones. So honestly, no shame (just pitty for your cash, but that’s all). As almost always in this industry, you can learn from this reality and learn to identify when situations really call for a trend change or not.

Let’s get it clear:

Retracement is a term that should be associated with the word “temporary”. Because that’s exactly what it is: a temporary price move in an opposite direction than the overall trend.

In case you are trading middle or long term, then riding a retracement makes no sense. Although retracement can last a few days sometimes, it is less risky to simply stay away from it.

Reversal, on the contrary, is seen as more substantial change. A change in the overall trend, which justifies closing and repositioning adequately.

Once determined the trend has officially changed, there is no time to lose and proper arrangements should be made in order to make that new trend work in your favor.

Differentiating these two concepts will help you improve your reaction when trading, understanding when it’s time to make a move and when to leave your positions alone.

Source link   Presented by Fort Financial Services

Is gold the best safe-haven asset?

From the thousand articles you read this week about the market, gold has been mentioned over and over again as a safe-haven asset. And yes, despite...

Bitcoin: a real investment?

The fact that you made a couple of bucks buying and selling Bitcoin doesn't make it a true investment. At least not for Warren Buffett, one of the world...

Habits that reduce your Forex risks

There are plenty of blogs out there. Some good, some not. And there are thousands of publications talking about risk management. While many...

A word on treasury yields

The yield of the benchmark 10-year Treasury note reached 3 percent in the previous session, a level not seen since January 2014. Gary Pollack, head of fixed-income...

Trading synthetic currency pairs

A synthetic cross currency pair refers to an artificial combination of currencies usually not available in the market. If you are taking your first steps in the Forex market...

Easy ways to avoid scammers in Forex

The Forex market is not a scam. In fact, it is an amazing place to make money. Unfortunately, dirty scammers (which operate not only in the Forex market...

Start paying attention to position size

When it comes to risk management, everything counts. And defining the right size for your position plays a key role in the equation. Intuitively...

Trading journal: should you keep one?

There are so many Forex blogs out there. Sometimes I think too many actually. But some of them are pretty useful (like ours, of course) and a common...

How to 'trade the news' in forex?

I am sure you've heard of it. The term 'trade the news' refers to those guys who would rather read newspapers all day instead of sitting...


Share it on:   or