Correctly Identifying Retracements and Reversals for Forex Trading

One of the significant challenges facing investors is the distinction between a price retracement and a reversal.

Many investors are left frustrated because they sell short, believing that a price decline is due to a trend reversal, only to see a price trend upward and close higher than the price they sold a position just a little earlier.

It is even worse when investors believe that the decline in their trade is due to a retracement, only to see their asset continue to decline in a trend reversal instead and their profits wiped out.

Fibonacci retracements are one tool that investors can use to determine whether these trends will occur more precisely. Retracements are temporary price reversals that occur during broader price trends. They do not indicate any change in the overall direction, as they are brief price reversals.

Correctly identifying whether a movement is a retracement or a price reversal can save a trader unnecessary costs while preserving gains and limiting losses.



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