New American Forex

A price reversal can be difficult to predict; they are quite easy to see in retrospect, however. This does us little good, however, so the better we are at predicting them, the more money you will make. Oftentimes, traders become confused as to whether the movement they are seeing on a chart is a reversal or a retracement. A retracement is a very short term thing, usually, and knowing how to spot the difference between these two occurrences will help you to improve your trading. Here are some things that will help you determine the differences between the two.

Reversals can occur at any time. Retracements, however, usually occur at the tail end of a big move as the price moves to find its most stable point. This means that it is more likely to be a retracement if the price has just undergone a major change.

Another key difference is that with retracements, the fundamental indicators of a currency do not change or only change very slightly. With a reversal, there is generally something with the fundamentals of that currency that reflects why the change is taking place. If you stick to solely technical analysis, you will not be able to spot these factors; therefore, being a well rounded trader has its benefits.

A final thing to be aware of is that sentiment does not generally change during a retracement. If there is a bonafide uptrend, there will be legitimate buying interest. In a genuine downtrend, there will be interest in selling off the currency.