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Determing a Retracement versus Reversal (Pivot)

 
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TawnyTran

Determing a Retracement versus Reversal (Pivot)

Watching Price Action is one of my favorite things to do.   That said, since i'm a short-term trader, I have very low tolerance for trades going the wrong way on me.  I like to know if the price is just retracing then continuing on its current trend, or if a true reversal (pivot point) is in the works.  The idea, of course, is if the price will continue its current trend then i will follow the trend and enter at the retracement for maximum profit.  However, if the  reversal is coming then I need to enter the trade the opposite way.   In order to determine retracement or reversal, I depend on the Lower Low.   Looking at the entire price action picture on different timeframes of course.  But on the currently timeframe (one that i use to trade, whether M1 for scalping or M5/M15 for more intermediate trades), whichever it is, the Lower Low will tell me what to do.  I find that LL is more powerful an indicator than the Higher High.  What are your thoughts and experiences in determining Retracement versus Reversal?

Tue, 09/25/2018 - 1:24am
 
Allengoldatty

Ether:

Great topic and being able to distinguish between the two is, imho, of paramount importance. Understanding that the market likes to move in waves is key. in an uptrend, as long as the market continues to make higher highs AND higher low's, the uptrend is intact and any pullback should be considered short term. However, once the market breaks the low and starts making lower low's AND lower high's, I would consider that a reversal (on that particular TF)

Stay Green my Friends :)

Allen

 
TheEaglestar1

retracements or reversals are best avoided in preference for when momentum determines you're in a new trend.

 
Rookie

Ether, as a short-term trader, trading on price action why does it matter, as an intraday trader it surely is more important as Allen points out "paramount importance". Shawn says a new trend is defined around 10 pips. I'm an equal opportunity trader I will trade bull or bear keeping in mind to build heavier positions in the major trend direction until a new major trend is defined. Pullbacks are shorter in duration but still very good pips.

Eagle I disagree with your statement "until momentum defines" it is the sentiment that makes the momentum and causes the direction long or short thus a trend is the current direction of the price action.

One looks to higher time frames for trend confirmation AKA alignment. One looks lower for definition. A new trend starts at the lower time frame as a child and grows up to become the parent and the parent controls the child until the child grows up.

 
iliananedeva11

I think that if the price makes a double top or double bottom there is a way bigger chance this is to be a reversal not retracement!

 
investments001

for bulls look for trend line break and retest of high and then more likely a reversal to occur. or at least that is what al brooks teaches