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Chapter 19, Part IV. Retracements and Reversals. Page 3

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 21, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Properties of Retracements

    1. Usually retracement happens after some previous strong move;

    2. Retracement should stop at some Fib retracement level, usually they are 0.382; 0.5; 0618. If market shows deeper retracement, say, 0.786 or even 0.88, then it tells that the current tendency becomes weaker;

    3. Retracement usually takes place during macro data or news silence. In other words, when fundamentals do not change;

    4. Using of pivot points can help in retracement identification. As we’ve said early, in an uptrend, the market when turns into retracement, corrects to pivot support 1, in a downtrend – to pivot resistance 1. If the market during retracement reaches to deeper pivot points, then it could become an early sign of a possible reversal approaching.

    5. Retracement is usually accompanied with some continuation patterns, say, Gartley “222”, flags, pennants, triangles etc.

    6. You may use trend by MACD as additional indicator of retracement. Sometimes, when the market turns to retracement and reaches some Fib level – MACD holds the trend unchanged. This is one of the indicators of possible continuation. Even if the trend has changed, you may wait for when it will reestablish again and enter on smaller retracement on lower time frame.

    7. Long trend lines and channels could give great help, since the market should not break it in case of retracement;

    8. The market should not break strong areas, such as Confluence and/or Agreement, if this really retracement;

    9. Retracement could be accompanied by hidden divergence; 10. Swing in direction of the trend will always be greater than countertrend swings in the case of retracement. 11. Very often previous swing highs/lows act as support/resistance during the trend. So, as a rule (but not always) following retracements will not move below them, as on chart #4.
     
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