How do you distinguish a retracement from a trend reversal? | Forex Factory

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How do you distinguish a retracement from a trend reversal?

  • #1
  • First Post: Oct 9, 2011 7:59am Oct 9, 2011 7:59am
As per title...
  • #2
  • Oct 9, 2011 4:41pm Oct 9, 2011 4:41pm
One goes farther than the other...
  • #3
  • Oct 10, 2011 7:57am Oct 10, 2011 7:57am
Not neccesarily 100% accurate.

Basically with a retracement (as I see it) the trend will carry on... so say you have a 100 day MA, the trend will still be showing going up, or at te very least flat, and a trend reversal will see it starting going down.

This may just be semantics at the end of the day, but I would read my charts as if the trend goes flat, it is more likely to be a retracement rather than a reveersal.

Hope that helps!
  • #4
  • Edited 8:58am Oct 10, 2011 8:30am | Edited 8:58am
Attached Image
, perhaps. Not to say, as the last poster noted, there aren't 100% retracements; other considerations may be trend angle and dependence of how the secondary cycles are related to the original trend.
Try investopedia, too.
  • #5
  • Nov 8, 2011 8:53am Nov 8, 2011 8:53am
i use fibo level for retracements, using 50 and 61.8% and SL set at 100%
  • #6
  • Nov 16, 2011 2:00am Nov 16, 2011 2:00am
I would say technically they are the same thing depending on which time scale is relevant to you. A retracement on 4 hr chart, would be a trend reversal on the 5min for example.
  • #7
  • Nov 16, 2011 3:40am Nov 16, 2011 3:40am
Breach of the trendline means possible trend change. Price trading beyond recent support/resistance after the breach of the trendline means possible reversal.
  • #8
  • Nov 16, 2011 5:57am Nov 16, 2011 5:57am
I know the difference when I see it; but that is usually well after the fact.
  • #9
  • Nov 17, 2011 9:36pm Nov 17, 2011 9:36pm
Quoting ventin75
As per title...
Grab a Dow theory book. learn it to your heart and watch the chart for a year then you will automatic find your answers. Good luck.
  • #10
  • Nov 18, 2011 1:46am Nov 18, 2011 1:46am
Whatch 1000s of reversals and retracements and you will begin to see. Thats not to say that you will always know or get it right, but you can recognise that the move is probably just a retrace or probably a reversal.

One example is if the move starts from the bottom very laboured and compressed, then starts to run away from itself in big wild swings then it is likely to be a retrace. If a move is very compressed from the bottom and stays that way, taking a long time to retrace even a small amount of the previous move then it is also likely to be a retrace. If it starts hard and fast from the bottom and moves in a very strong, but controlled manner, respecting trend channels (both upper and lower lines) and making nice tight consolidations that break away hard and respect the top of the consolidation when it is tested, then you probably have a reversal.
  • #11
  • Nov 18, 2011 3:19am Nov 18, 2011 3:19am
Quoting ventin75
As per title...
Depends on your scope. A retracement on a weekly chart would quite easily be distinguished as a long trend on a 1 hour chart or lower. Not sure on what the point is as there is potential to make money on both and just saying your trading with the trend does not guarantee that you will make money long as it depends on your entry and as you don't know where you are at in a trend until in the future all you can do is trade your signal and manage each trade for what its worth.

All to often traders focus on the trend and only buy in a bull trend and sell in a bear trend, they also tend to hold loosing trades based on this believing that the trend will eventually come back and return positions to the positive.

Trade your signals, look for good entrys and manage your risk. Take profits when you feel they are offering the best and don't be discouraged if you took profits too early. Provided you trade your plan and your plan has showing positive results over a period of testing then you should be doing better than the average.

RT
  • #12
  • Nov 19, 2011 1:45am Nov 19, 2011 1:45am
It kinds boils down to the time-frame you're using.
  • #13
  • Nov 21, 2011 9:42pm Nov 21, 2011 9:42pm
It is possible to distinguish retracements and reversals as they are happening. You will not be right 100% of the time but you can get it right more often than not.

Anyone who knows how to do it accurate enough will not give you their edge by telling you exactly how to do it though, so you will have to work it out
  • #14
  • Nov 25, 2011 5:41am Nov 25, 2011 5:41am
There are only two reliable retracement levels. Namely 0% and 100%.
  • #15
  • Nov 26, 2011 10:48am Nov 26, 2011 10:48am
As far as reliability goes, the 0 and 100 mark should be perfect, thanks for the laugh!
  • #16
  • Edited 3:22pm Nov 26, 2011 3:01pm | Edited 3:22pm
Quoting Razor_trader
Depends on your scope. A retracement on a weekly chart would quite easily be distinguished as a long trend on a 1 hour chart or lower. Not sure on what the point is as there is potential to make money on both and just saying your trading with the trend does not guarantee that you will make money long as it depends on your entry and as you don't know where you are at in a trend until in the future all you can do is trade your signal and manage each trade for what its worth.

All to often traders focus on the trend and only buy in a bull trend and...
Brilliant advice, just add swings and cycles into the mix and you will know when a trend on any given timeframe is over.

Every retracement has its own valid trend.

What I mean to say is, "trends work on EVERY timeframe", take that to the bank.
  • #17
  • Edited 4:10pm Nov 26, 2011 3:21pm | Edited 4:10pm
Quoting Razor_trader
...... All to often traders focus on the trend and only buy in a bull trend and sell in a bear trend,

they also tend to hold loosing trades based on this believing that the trend will eventually come back and return positions to the positive......
In my experience the opposite is common. Traders don't focus on and should trading with the trend, which is the higher probablility play.

But the second part I agree, most then will hope the trend bails them out instead of using proper trade management and having a stop in place and not "adjusting" it.
  • #18
  • Nov 26, 2011 3:25pm Nov 26, 2011 3:25pm
Quoting SunTrader
In my experience the opposite is common. Traders don't focus on and should trading with the trend, which is the higher probablility play.

But the second part I agree, most then will hope the trend bails them out instead of using proper trade managament and having a stop in place and not "adjusting" it.
Agreed, "hope" is a dirty word, there are good trends and bad ones, work out the difference and you are sorted.
  • #19
  • Nov 27, 2011 1:30am Nov 27, 2011 1:30am
Quoting ventin75
As per title...
You have to clarify your question a bit.
  • #20
  • Nov 27, 2011 4:12am Nov 27, 2011 4:12am
If we define a trend as a series of HH's and HL's (uptrend) and the reverse in a down trend then technically a retracement should not breach these rules.

Every chart has structure, and you need to learn to read this structure and the story that goes along with it.

So lets say for example you are in an uptrend and on a retracement one of your lows gets breached, is this a trend reversal? not yet but it is certainly a warning. Then what you want to see is for price to make an attempt at the high, if this then fails to make a new high, you need to start to get ready for the reversal. The final confirmation is when price then breaks the low. You now have a lower high and a lower low hence technically making you uptrend in valid.

Now will this become a strong down trend? No one knows, but at least you have some rules there for identifying what could be the beginning and as long as you are consistent you should be fine.

Of course what everyone else was saying about different timeframes showing you different things is also correct. So you need to put all of this into context, hence being able to read the story.

Nexas
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