Everyone is thinking about the trend trading strategy. People believe that the trend trading method is the only way to make big gains in the trading business. But to trade with the trend, you must have strong knowledge about the market retracement.
Most of the time, traders don’t even know what a retracement is. A retracement is nothing but a minor movement in the price against the established trend. It is often known as a correction in the Forex market.
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How to Deal With the Complex Market Retracement
If you can trade the market with retracement, you can manage to earn a big profit without losing too much money. Before you start thinking about trend trading method, you should learn about the major retracement.
What is Retracement?
Retracement is a short movement in the price that occurs after an extend rally. Most of the time, it allows traders to find the accurate point at which to execute the trade. But when you look for the retracement, the trading time frame plays a major role. If you trade the minor or lower time frame, you might not get an accurate retracement point. So, it’s highly recommended that you look for the retracement point in the bigger time frame.
Role of support and resistance
The support and resistance level plays a crucial role in identifying the major retracement point in the trading instrument. In case of bearish correction or bearish retracement, you should expect the endpoint to be near the critical support level. For the bullish correction, you should be looking to execute the short trade near the critical resistance level. To draw the support and resistance level with a high level of accuracy, use the Saxo capital markets trading platform. Those who are using a low-end trading platform never get an accurate price feed. Eventually, they end up trading the low-quality signals.
Retracement vs. reversal
At times, the retracement turns into the reversal. This is a very important concept in trading. If for any reason the market starts to exhibit an extended movement in favor of the retracement, you should analyze the trend. So, how can we find the major reversal in the trend? To find the key reversal, you have to rely on the Fibonacci retracement tool. When the price breaks the 61.8% retracement level, the corrective move is no longer called a retracement. You should consider it as a sign of reversal. Once you get better at identifying the key reversal point, you can execute the trades with a high level of accuracy.
Using the price action signals
To find the endpoint of the retracement, you can also use the price action signals. The price action confirmation signals give the traders critical information regarding the market movement. Based on the price action confirmation signals, you can execute quality trades without taking too much risk. But to learn to the candlestick pattern, you need to switch to the demo account. Those who are thinking that a demo account is a waste of time are making a big mistake. Even highly successful traders use the demo account to develop their skills. So give importance to the demo trading environment so that you can learn without taking any real risk.
The news factors
The news factors play a crucial role in a market retracement. The reversal usually takes place when the market experiences a high impact news event. On the other hand, retracement takes place in the event of medium impact news. So, learn to deal with the major and minor news so that you don’t become confused by trading the retracement and reversal. Though it might be tough, you can easily do so by using the practice account. Focus on your trading skills and try to improve your knowledge. Use the practice action to learn the difference between major reversal and retracement. Once you feel confident, use these techniques to trade the trend and major reversal in the market.