How to Identify Reversals?
1 min read
A retracement move is that the opposite of the trending move. It is the weaker leg of a trend and it trades against the direction of it.
The retracement move, in a healthy uptrend, usually has more bearish than bullish candles; the bearish candles are relatively small, and it always closes near the center or lows of the range.
When the bearish candles are becoming larger, it is telling you the selling pressure is getting stronger because the buyers are unwilling to shop for at higher prices.
As a trend matures, it will enter a distribution stage where both buyers and sellers are in equilibrium.
It is, therefore, clear the world of support is a crucial level as it’s the last line of defense for the buyers. If it breaks, it’s just about game over for the bulls.
A reversal occurs when a stock changes trend and starts to move in the opposite direction of previous price action. Psychologically, reversals are often incredibly difficult for even the foremost experienced investors to react to. That’s because within the early stages of a reversal, the market still shows many indications of a continued move within the original direction.
