What is the difference between Reterracement and reversal?

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When carrying out trading activities on the forex market, everyday traders will of course pay attention to market trends. This is because it is very important in its efforts to profit from market volatility.

The market trend itself can be categorized into three general types, the first is an uptrend also called Bullish, the second is a downtrend or what is called Bearish, and the third is flat or what is called Sideways.

An uptrend shows that prices tend to increase and often create higher highs and lows. On the other hand, a downtrend is characterized by prices that tend to form lower lows and higher lows. And finally, the flat is marked by candlesticks in a row as if there is almost no movement.

During an uptrend, prices of course do not continue to rise without a downward wave, there are times when a downward wave occurs which is called a retracement or also often called a pullback, where the price moves down from the prevailing trend but rises again to continue the prevailing upward trend.

In general, retracement is a temporary trend reversal that allows traders to get the best price according to the prevailing trend. During an uptrend or downtrend, traders usually prefer to wait for the price retracement to open a new order because it is considered lower risk.

While Reversal is a fundamental reversal of the prevailing trend, in contrast to retracement, which is a temporary reversal, reversal indicates a significant trend reversal and changes the existing trend structure, and indicates a change in market sentiment.

We can learn more about the differences between retracements and reversals on the FXOpen blog where they are explained clearly with examples to make understanding easier.

Recognizing this retracement or reversal is very important for traders to support them in achieving profits in high-risk forex trading. So we can trade with the right decision and minimize mistake bias.