There is a saying in the Forex market, “Trend is your friend”. Most novice traders follow this statement and try to make money by taking the trades with the trend. They become so biased that they even forget the fact, the trend can change at any time. Eventually, they keep on losing the trades once the market shifts its trend. On the contrary, the elite traders are aware of the trend change factor. They easily identify the reversal in the market and start taking their trades in favor of the newly formed trend.
So, is it possible to identify the key reversal in the market? Well, to identify the reversal, you need to follow some strategic steps. Go through this article as we will give you some amazing tips which will let you identify the major reversals in the market.
Use the advanced indicator
Learning the proper use of any tool is a very tough task. And if you start to use the advanced indicator, things will become much more difficult. To make things easier, you may use the paper account and learn trading without risk any real money. Try to analyze the indicator data right before the trend reversal take place. And if you fail to identify the reversal point in the market, check the indicator reading after the reversal takes place. By doing so, you will get a general idea to use the indicator during the major reversal.
Identifying the major reversal might seem easier when you use the right tool. But still, you should not trade with the key reversal unless you are certain that the new trend is established. Take your time and look for other variables to get the confirmations.
Use the Fibonacci retracement tools
The elite traders at Saxo capital markets often rely on the Fibonacci tool to find the endpoint of retracement. To take the trades at the Fibonacci retracement level, traders draw the important levels by using the key swings. Usually, the trades are taken at the 50% or the 61.8% retracement level. If the price of the asset breaks the 61.8% retracement level, you may consider it as a strong reversal signal. But make sure you have drawn the retracement levels in the higher time frame. If you draw the retracement levels in the lower time frame, you might end up with a false reading.
Traders who have strong price action trading skills can also rely on the candlestick pattern formations. The formation of the reversal pattern right after the break of a major support or resistance level should be considered as an important reversal signal. So, look for this pattern in the higher time frame and protect your capital.
Use of the moving average
With the help of the 100 periods moving average, you can easily identify the key reversals in the market. If the price of the asset breaks above the 100 period SMA, you can say, the bullish reversal has taken place. On the contrary, if the price breaks below the 100 period SMA, expect a strong bearish trend. You can also change the period settings in the moving average to get a better result. For instance, you may rely on the 200 periods moving average to find the potential trade signals in the market. If possible, you may use 200 and 100 period SMA at the same time.
Some of you might have heard about the concept of the golden cross. When the 100 SMA crosses above the 200 SMA, we call it a bullish golden cross. On the contrary, if the 100 SMA crosses below the 200 SMA, we call it a bearish golden cross. By using the concept of the golden cross, you may find the reversal in most of the major assets. But remember, the golden cross is not a bulletproof way to make money at trading. You must adhere to the rules of money management and only then you can succeed as a retail trader.