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Related terms
An analysis of price going up. When a trader is bearish on a pair, they think the market will be heading up. A trader is a bull in the market when placing or holding long positions.
A bearish trend that consists of lower lows and lower highs.
When price retraces in the opposite direction of the overall trend. It’s a quick pause in the overall trend before eventually continuing in the original trend.
A term used to describe the overall change in market direction.
The study of price action and market structure to form a prediction of which direction the market will move in based on candlestick patterns and previous data.
A tool used to follow the direction of the market by linking the lower highs in a downtrend and higher lows in an uptrend.
Uptrend is a rise in price which describes the direction in which the market is heading. When price is in an uptrend you will see it make higher highs and higher lows.
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BeginnerEarly Stages for Beginners8 Topics
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Forex Terminology11 Topics
- Major and Minor Currency Pairs
- Basic Forex Terminology
- Pips & Ticks
- The Broker & The Spread
- What is a Lot?
- Stop Loss & Take Profit
- Margin & Leverage
- Retracement & Reversal
- When Can I Trade Forex? Sessions - Market Open and Close
- 3 Types of Analysis (Technical, Fundamental, Sentiment)
- 3 Ways a Market Can Go (Up, Down, Sideways)
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Margin & Leverage2 Topics
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IntermediateIdentifying Scams2 Topics
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Brokers for Beginners5 Topics
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Technical Analysis13 Topics
- Types of Charts
- Understanding Japanese Candlesticks
- Candlestick Patterns For Beginners
- Single, Double & Triple Candlestick Patterns
- Support and Resistance
- Confluences w/ Candlesticks & Support & Resistance
- Trendlines
- Counter Trend Trading/ Counter Trend Lines
- Fibonacci
- Moving Average
- Top-Down Analysis
- Fakeouts
- Consolidation Trading (Breakout, Retest, Continuation)
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AdvancedUsing Indicators6 Topics
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Technical Analysis (Part 2)8 Topics
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Market Structure5 Topics
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Fundamental Analysis9 Topics
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CompletionRisk Management for Beginners8 Topics
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Psychology for Beginners7 Topics
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Personal Psychology Questions2 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!
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.