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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

Difference Between Retracement & Reversal

When you see an impulse move in the market, it is always followed by what we would call a “retracement”. You know when you’re moving so quickly that you end up losing something along the way, you retrace your steps until you find the place you lost it along the way? Well that is what price does before continuing on its path. The market makes an impulsive move up/down and retraces until continuing in the direction of the impulse move. After the retracement, is where you’ll find the best entries to place a trade.

Simple-Retracement

A reversal in the market is a shift in the direction of the previous trend. Let’s say that price is in an uptrend and it makes a higher low and then a higher high. When price comes back down and breaks that higher low, more times than not, price is indeed reversing. That is what we call “a break of structure.”

Simple-Reversal

Below is a chart of a bullish market that reversed into a bearish market.

Retracements-_-Reversals-Chart

There are tools to identify both of these occurrences in the market. To identify a retracement, most traders use the Fibonacci tool and counter trendlines. To identify reversals, most traders use trendlines and horizontal rays/lines. Using these tools can be very beneficial to your trading.