Trend reversal reasons and signs.

Trading with the trend has always been a priority area of ​​Forex trading; you just need to open a deal and you can assume that the profit is in your pocket; everything would be exactly like this if it were not for the so-called trend reversal.

It is for this reason that most deposits are drained and the largest drawdowns occur; there can be many reasons for a reversal, but the result of such an event is always the same - losses.

A trend reversal should not come as another surprise to you; only in this case will you be able to close the deal with minimal losses, and for this you should clearly know when and why a change in the direction of price movement occurs.

Firstly, you should find out what is hidden under the concept of “Trend Reversal” - this is a situation when the price begins to move in the opposite direction to the one in which it has been moving recently. Moreover, the magnitude of this movement already exceeds the maximum possible correction size for a given time period.

For example, on H1 there is an upward trend, and the maximum Forex correction during the session was 15 points, but the price of the currency pair begins to fall and has already passed 30 points, with a high probability a price reversal has occurred.

Reasons for trend reversal.

There are several reasons why this phenomenon occurs:

Fundamental - the release of strong news that significantly affected the exchange rate.

Change in market condition - reached the maximum possible level of overbought or oversold, which led to the appearance of a large number of orders against the existing trend.

A sharp change in demand (supply) - a large quantity of some currency appeared on the market, or vice versa, someone began to buy a certain monetary unit en masse.

Any of these events can lead to the price sharply changing its direction of movement, so control over these three factors allows you to make a timely decision to close the transaction.

The truth is that in Forex you can only track news releases; control over other factors is not available on the virtual exchange.

Signs of an upcoming trend reversal.

As noted earlier, the main sign is a significant movement against the existing trend. In addition, a sharp price jump that occurred in a short time or the formation of a price gap ( Forex gap ) can be considered a signal for a reversal.

As well as a significant breakdown of the support level in an uptrend or the resistance level in a downward trend. At the same time, you should not immediately draw quick conclusions if one of these events occurred; you must first try to find out the cause of such a phenomenon. For example, look at the news feed. The main insurance, which is used to protect the deposit from complete loss in the event of a trend reversal, still remains a stop loss order .