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  1. Beginner
    Early Stages for Beginners
    8 Topics
  2. Forex Terminology
    11 Topics
  3. Margin & Leverage
    2 Topics
  4. Personal Psychology Questions
    2 Topics
  5. Psychology for Beginners
    7 Topics
  6. Intermediate
    Identifying Scams
    2 Topics
  7. Brokers for Beginners
    5 Topics
  8. Technical Analysis
    13 Topics
  9. Market Structure
    5 Topics
  10. Completion
    Risk Management for Beginners
    8 Topics
  11. Fundamental Analysis
    9 Topics
  12. Advanced
    Using Indicators
    6 Topics
  13. Technical Analysis (Part 2)
    8 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 quickly and end up losing something along the way, you retrace your steps until you find the place you lost it? 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.