Reversal patterns in Forex trading are used to give a signal that the direction of the market within a short-term period is changing. You should always look out for any Forex reversal patterns to have successful trades in the Forex industry.
This article will teach you everything you need to learn about trend reversal patterns and trend reversals in Forex and how you can use them to your advantage.
Why do people take part in Forex trading?
Forex or foreign exchange is the world’s largest and most liquid market. Most people participating in Forex choose to trade in this market because of its easy accessibility, high liquidity, and 24/7 schedule. Those with a financial background in the trading industry participate in Forex trading because they can be their own boss and work on their own time.
What should people do to trade in Forex?
It’s easy to start Forex trading, especially in day trading. Since the Forex market is one of the most easily accessible markets in the world, anyone can start trading whenever they like. You can have a capital of $100 and look for Forex trading markets that allow that minimum amount for you to start trading. However, like most trading transactions, you must first learn the risks and understand the lot sizes and pip values before taking big gambles.
What exactly are Forex reversal patterns?
Forex reversal patterns are also called reversal candlestick patterns and these indicate the formation of the candlesticks that signal the end of an existing trend. This is the opposite of the continuation candlestick pattern that indicates a certain trend is most likely to continue going in the same direction.
How To Identify a Forex Reversal Pattern
When you spot a reversal pattern in the downtrend, it means that it is the end of selling spree and onset of buying– forming a bullish reversal. It is important that you know how to distinguish between retracements and reversals in forex trading so you can avoid trade losses in the future.
Here are 3 methods to help you identify when there is a Forex reversal pattern:
#1 The Fibonacci Retracement
The most common way to spot retracements showing reversal signs is to use the Fibonacci levels. Most of the time, price retracements are at 38%, 50%, and 60% in the Fibonacci retracement levels and if they go beyond these levels, it indicates a reversal happening
#2 Pivot Points
Pivot points is the term traders use when they look at the uptrends and downtrends in the candlestick patterns. In uptrends, the lower support points (S1, S2, S3) are the traders’ focus and will wait for it to break. In downtrends, the traders will look at the higher resistance points (R1, R2, R3) and wait for those to break.
#3 Trend Lines
When you look at the trend lines and it looks like a major trend is about to break, then that indicates a reversal pattern. Forex traders can anticipate a reversal by looking at the candlestick pattern on the data board and using this technical tool to know if there is a looming break in a major trend pattern.
Are reversal patterns in Forex trading beneficial?
Reversal patterns in forex are quite reliable, however, most don’t see them happening until it’s too late. The more experienced you are with technical analysis, the better you’ll be able to understand these patterns and gain an advantage over when to short and when to go long.
How do you trade with reversal patterns and trends in Forex?
Understanding reversal patterns is a very powerful tool as you could save yourself from losing money, and make yourself money as well. For example, when you’re shorting a currency and you start to see a reversal upwards, you know when to buy back in before your short turns against you.
Types of Forex Reversal Patterns Traders Use
Here are some of the Forex reversal patterns that traders usually use:
Head and Shoulders
A high point distinguishes the head and shoulders pattern in between two lower high points with the troughs hitting the same level. You can see this start to develop when you see the head point; when the next shoulder pops up and is lower than the head, you know that there is a possibility that this is a head and shoulders pattern and that there is a bearish trend upcoming.
Wedges
Wedges are a common pattern distinguished by an up and down pattern that is slowly pinching to a certain point. They may also do the opposite and expand. The example above is a rising wedge, the two lines above and below the candlesticks represent the wedge, and as it gets closer to the closing point, the higher the chances of it falling.
Create a Decode Account Today and Get FREE $DECODE! Scan the QR Code Now!
Decode Coin is the cryptocurrency made by the Decode Group, a financial services company that offers educational training, foreign exchange services, and fund management, with two decades of experience.
The Decode Coin ($DECODE) aims to be the most trusted currency used in the Financial Service industry, being used to settle all fees such as transaction fees and referrer fees. $DECODE may soon be used as a payment for all transactions within the Decode Group and over 50 partner establishments worldwide.
Visit decodeex.com/promo, Register and Verify your Email, Sign-in and Input your ERC-Wallet, Submit KYC requirements, and that’s it! You will be AIRDROPPED your FREE 500 $DECODE within 24 hours.