In trading, distinguishing between market retracements and reversals is crucial for risk management and overall success. This article explores these two key concepts, providing traders with insights on how to identify and respond to these different market movements. Let's delve into the intricacies of retracements and reversals and the difference between the two.
Understanding Market Trends
Let us remind you that market trends refer to the general direction in which the price of an asset is moving. Traders classify these trends as upward (bullish), downward (bearish), or sideways (range-bound).
Upward trends are characterized by higher highs and higher lows, indicating growing market confidence. Downward trends display lower highs and lower lows, signaling declining market sentiment. Sideways trends show little movement in either direction, reflecting uncertainty or consolidation in the market. These concepts are important, as they’re key in establishing whether a move is a retracement or reversal.
Retracement Definition
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