How Can You Tell the Difference between a Retracement and a Reversal?

The knowledge to predict the difference between a retracement and a reversal is a great tool to add to your trading arsenal. Many experienced traders are still unable to detect the difference between an assets retracement and a potential reversal. Reversals are temporary changes in a trend that occurs over a short period of time. Whereas retracements are momentary changes that often occur during a longer trend. Unlike reversals, retracements show a continuation of an opposing trend within the targeted price action. Being able to successfully determine whether an asset is displaying a reversal or retracement is vital if you want a high success rate trading portfolio.

Let’s say you’ve entered a market and are holding a position. But now the market is moving against you. Is this current move a retracement or a reversal? If it’s a retracement, it is a temporary pullback, where prices will bounce off support and resume the direction of the original trend. Deciding when to close your trade or keep it going is very important if you want to earn more pips but not turn a winning trade into a losing position. 

Barry Norman 
The Director of Investors Trading Academy as well as a published author and educator. Barry brings with him over 35 years of financial market knowledge and experience. He holds an MBA in Finance and Economics from UCLA and an undergraduate degree in Economics from the University of Maryland. Barry was award the title of “Best Education in Europe” by Global Banking & Finance. 
Barry is also a presenter for the MoneyShow and many well-known news sources.