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  • Beginner
  • Intermediate
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  1. Beginner
    Early Stages for Beginners
    8 Topics
  2. Forex Terminology
    11 Topics
  3. Margin & Leverage
    2 Topics
  4. Intermediate
    Identifying Scams
    2 Topics
  5. Brokers for Beginners
    5 Topics
  6. Technical Analysis
    13 Topics
  7. Advanced
    Using Indicators
    6 Topics
  8. Technical Analysis (Part 2)
    8 Topics
  9. Market Structure
    5 Topics
  10. Fundamental Analysis
    9 Topics
  11. Completion
    Risk Management for Beginners
    8 Topics
  12. Psychology for Beginners
    7 Topics
  13. Personal Psychology Questions
    2 Topics

Retracements and Reversals

Once you start trading, you will hear these terms almost always! REVERSALS are when the market has decided to change it’s trend, and move in the opposite direction completely. RETRACEMENTS are temporary direction changes within the market, before continuing the overall trend. So if the trend is BULLISH (up), when the market “retraces,” that just means it’s coming down for a little bit (showing a few red candles) before continuing the overall direction.

NOTE: No trend will go STRAIGHT UP or STRAIGHT DOWN. They will go up, retrace, up, retrace, up. Or down, retrace, down, retrace, and down. We will discuss this more with “Trendlines” within the Technical Analysis section.

Knowing how to determine whether price is retracing, or reversing could be detrimental to your trades. If you decide to hold when there are clear signs of a reversal, you could easily turn a winning trade into a losing one. Not to mention those who get scared by the slightest sign of price pulling back.

No need to worry, we will dive deeper into these movements as we go along! Below is an illustration to give you an idea of the difference between the two!

Retracements-#2

Once of the hardest things in Forex is deciding when a pair is retracing vs reversing. As we said above, a lot of times, people will close a trade when it was simply retracing, or hold a trade when there were clear reversal signs.

While there are NO guarantees in the current moment that you made the right choice when predicting if price was retracing or reversing (obviously you can tell after the fact), all we can do is get as close as possible to predicting it correctly; and that’s where technical analysis patterns and fundamental announcements come into play. We use both types of analysis to gage our current bias of the market and help us make a decision.