How to Recognize Reversals and Retracement

Reversal and Retracement , when we are able to distinguish both of them well, the chance of getting a profit will be even greater and the losses can be minimized. And the ability to be able to group price movements into reversal or retracement groups is very important.

Here are some differences between a retracement that occurs in a short time with a reversal that occurs in a long time.

Retracement	Reversal
Usually occurs when the trend moves strongly	Can happen at any time
Occurs temporarily, or is also called a temporary reversal	Happened for a long time
Fundamentals such as macroeconomics do not change movements	Fundamental DO can be a catalyst for movement changes over a long period of time
When Uptrend buys a lot of sentiment, the price increases. And when the Downtrend gets more and more selling sentiment, the price goes down	When Uptrend has very little buying sentiment to push prices lower. And when the Downtrend is very little selling sentiment can push prices higher.

Retracement Identification

We can use the Fibonacci retracement to find out whether the price is experiencing a retracement or not.

Recalling that the price will be at the Fibonacci retracement level will be around 38.2%, 50.0%, and 61.8% before resuming the strong trend.

And if the price moves continuously down below the Fibonacci retracement level, then most likely the price will move reversal.

In this case (see picture above), prices (traders) take a short break to take a breather at the 61.8% Fibonacci retracement level before continuing the uptrend. And after a while the price moves again and breaks again at the level of 50.0% before moving higher.

In addition to using the Fibonacci retracement we can also use the pivot point to determine the reversal.

When prices move uptrend, traders will see support for S1, S2, S3 and wait for a breakout. And when the price moves downtrend traders will see the resistance R1, R2, R3 and wait for a breakout. And if there is a breakout, the reversal will most likely occur.

The last method used is trend lines, if the main trend can be penetrated then most likely a reversal will appear.

And so that the opportunity to determine whether prices will experience a greater reversal, we can combine trend lines with Japanese candlesticks that we have previously discussed here.

Please note that the above methods are not the only method for detecting reversals and retracements. Maybe you will have your own method to determine market conditions like this, of course, after going through some practice and forex trading experience or whatever it is the shape of the object. For that, please learn a lot and don’t forget to practice it later.