What is Trend Reversal and Retracement?
Every trader is in the situation when they need to decide whether a decline or rise in the price of particular derivative is for long term or for short term. Traders buy derivative and hold to rise in their price. But this hold can become a turning point if price of derivative goes down. This rise or fall in prices can be avoided if you know how to identify trend of market accurately. These Market Trends are of two types: Trend Reversal and Trend Retracement.
The change in overall trend of price is called as Trend Reversal. We can this in two ways:
- When an uptrend changes to downtrend then reversal occurs.
- When a downtrend changes to Uptrend then also reversal occurs.
A retracement is when the price trend of particular asset changes direction temporarily. In simple terms we can say this is the price movement that moves against trend of market but again come back to continue the trend.
These Trend Retracement and Trend Reversals can occur at any time and probability to lose money increases. That is why using Stop Loss can be a great risk management technique while trading with trend.