Trend trading strategy has always been the most profitable trading system. But this doesn’t mean the trend of a certain asset will never get changed. In fact, there is a strong chance a market trend will get changed twice within six months. The professional traders in the United Kingdom know this fact very well. In fact, they even make a profit by trading the major reversal of the trend. Those who are new often make mistakes by considering the retracement as a trend change.
So what is a market retracement?
At times the market often exhibits extended counter-trend movement and such movement is known as a retracement. The professional traders simply use the Fibonacci retracement tools to measure the overall condition of a market retracement. If for any reason the price of a certain asset manages to break the 61.8% retracement level, they consider it a trend reversal sign. This is just one simple process of identification of trend reversal. Now we are going to give you some amazing tips which will help to find the major reversal with an extreme level of accuracy.
The best way to find the major trend reversal is by using the trend lines. When you draw a trend line make sure you use the daily time frame. If you draw the trend line in the lower time frame, you might end up by getting the market retracement. The pro-UK traders always suggest using the daily or weekly time frame to find the long term market trend. If the price of a certain assets breaks the trend line, you can consider it as a strong trend reversal sign and execute a trade in your online trading account. But make sure you are not taking a huge risk unless you get price action confirmation signal.
Pivot points analysis is a great way to find the overall strength of the market trend. In fact, you can use to determine the reversal point of any market. If the price of a certain asset trades above the daily pivot point you can consider it as an uptrend. If for any reason, the price starts to trade the below the pivot point, consider it as a bearish trend. So, how do we identify the reversal? The idea is very simple. You need to look at the price patterns. The movement it breaks below the daily pivot, consider it as a bearish reversal signal. Similarly, if it breaks above the daily pivot consider it as a bullish reversal signal.
Analyzing the high impact news is a great way to find the reversal point of any trend. Let’s make it clear with an example. Consider the USDJPY pair is in an uptrend. During the FOMC meeting minutes, the FED comes up with a dovish statement and the price of the USDJPY pair is most likely to go down. Right after the Fed meeting minutes, a geopolitical event showed significant weakness in the U.S economy. Such an event is most likely to change the overall trend of the USDJPY pair. So, learn about the fundamental factors of the Forex market so that you can spot the trend reversal.
Reversal trading strategy is extremely risky. Unless you have extensive experience with currency trading, you should never try to trade the reversal. If you are good at the technical analysis, you can also use the major chart patterns since it’s a great way to spot the reversal. But when you trade such reversals make sure you are not taking a huge risk in any trade. Try to limit your risk in every possible way. If necessary, use the price action confirmation signal since it will greatly improve your chances of winning the trade. Keep on learning new things about the market since it will keep you updated about the latest economic news. Trade safely to protect your trading capital.