A newbie might think, 'What is a retracement in the definition of forex trading?'. Retracement is actually small ranges of reversals of a trend that take-place in either bullish or bearish condition of the market.
Try to open your trading platform and look for long market trend somewhere in the past. You will notice that the trend goes up and down. Those fluctuations of the prices were called 'retracements'. If you are looking at a bullish trend, then the retracements that were formed were those bearish trend attempts.
Confused? if you are then here's an illustration that will help you out with a better explanation and understanding.
Above is an example of retracement on a bullish market condition. There are actually two retracements on the given example above in which I encircled it with the blue color. Notice how the trend continued to go up just after hitting the retracement levels?
Here is another retracement example on a bearish market condition:
On the image above, the market was on a bearish condition and it has made multiple retracements indicated by the blue circles.
Retracements are actually good entry points. So if you are late at entering your trade from a good trend, the best way to gain entry is by opening your order right exactly from the next retracement level. Professional traders claims that 'you will only be wrong once' and that is when you have entered at the top or bottom of the trend.
Common saying among all professional traders are 'Always buy dips in a rally' or 'Always sell rallies in a downtrend'.
How do you exactly determine the level of the retracement of a trend?
Determining the retracement level of a certain trend can be done through various means. You can rely on Fibonacci levels, support, resistance, pivot points, previous high/low and etc... Based on my own experience, I find it best to rely with the supports and resistances.
Try to open your trading platform and look for long market trend somewhere in the past. You will notice that the trend goes up and down. Those fluctuations of the prices were called 'retracements'. If you are looking at a bullish trend, then the retracements that were formed were those bearish trend attempts.
Confused? if you are then here's an illustration that will help you out with a better explanation and understanding.
Above is an example of retracement on a bullish market condition. There are actually two retracements on the given example above in which I encircled it with the blue color. Notice how the trend continued to go up just after hitting the retracement levels?
Here is another retracement example on a bearish market condition:
On the image above, the market was on a bearish condition and it has made multiple retracements indicated by the blue circles.
How Can You Only Be Wrong Once?
Retracements are actually good entry points. So if you are late at entering your trade from a good trend, the best way to gain entry is by opening your order right exactly from the next retracement level. Professional traders claims that 'you will only be wrong once' and that is when you have entered at the top or bottom of the trend.
Common saying among all professional traders are 'Always buy dips in a rally' or 'Always sell rallies in a downtrend'.
How do you exactly determine the level of the retracement of a trend?
Determining the retracement level of a certain trend can be done through various means. You can rely on Fibonacci levels, support, resistance, pivot points, previous high/low and etc... Based on my own experience, I find it best to rely with the supports and resistances.
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