the difference between Retracement and Reversal

[kaiceaziz]

We as traders always wonder, whether a decline in the price of a stock we're in will last for long time or just a market hiccup. Maybe we sometimes rush and sell our stock in such times, only to see it rise just days later. This is a disappointing scenario, but it can be avoided if we learn how to identify and trade retracements properly.

Retracements are timely price reversals that take place within a larger trend . The importance is that these price reversals are temporary, and do not indicate a change in the larger trend.

It is important to know what is the difference between retracement and reversal . There are several important differences to observe when facing a price movement:

RETRACEMENT/REVERSAL

Time Frame
Short-term reversal, lasting no longer than one to two weeks / Long-term reversal, lasting longer than a couple of weeks.

Short Interest:
No change in short interest /
Increasing short interest

Money Flow:
Buying interest during decline /
Very little buying interest.

Chart Patterns:
Few, if any, reversal patterns - usually limited to candles/
Several reversal patterns - usually chart patterns (double top, etc.)

Volume:
Profit taking by retail traders (small block trades)./
Institutional selling (large block trades).

Now i think i made it clear for every one to know such a difference. So learn to trade and enjoy!

 

[gkintl]

Retracement exist irrespective of a trend. These are minor corrections that happen prior to the continuation of the original trend. On the other hand reversal is a permanent change where the price starts moving in the totally opposite direction. Reversal indicates a shift in the direction of the primary trend where as it is not so in the case of a retracement. Retracements are opportunities to enter a trade while reversals are usually used to exit a trade.

 

[Pettyeve]

Retracement is still a form of reversal with the main difference in here being, retracement is temporary while the reversal is a complete change in the direction the market was taking.

 

[kasual]

Retracement occur because market losing momentum. Price arrive at distribution phase where it caused by many traders choose to take profit and close positions. However, retrace movement is just temporary. Soon enough price will move to the original trend when it get support from traders.

 

[Decub]

In the simplest definition of it. Rrtracement is just a market condition where the trend of the market temporarily changes its direction. On the other hand, reversal is the complete change in market direction. They are all market conditions which arise due to certain factors.

 

[kasual]

Retracement is temporary swing back movement which occur in the middle of trend movement. It happen because many traders choose to close position. And thus, make the trend momentum stop running. Retrace movement doesn’t change the whole market trend. While if it regarding with reversal. It clearly the trend start to move opposite.

 

[willy]

I think retracement take more time than reversal specially when the price face strong level but the trend also is very strong therefore the price will continue in the trend after little reversal but if the trend is not strong enough the price will make retracement for enough time before continue with the major trend

 

[rexway]

for me i think there is no specific difference between this I can see that reversal is simply the process by which the market test some certain value or fuction then go back to its original position

 

[kasual]

Retracement explain that market swing back for temporary. It happen because market losing momentum since many traders choose to close position. However, when it get enough support back, market will start to move according to the original trend. And in order to point out possible of retracement level, traders can use fibonacci indicator.

 

[Bonyi]

This is a very informative write up on retracement and reversal. Thanks for sharing this on this forum. Hope to put this into practice in my next trade.

 

[Faal]

Very good lesion for the new traders! By the way, I am interested in only trendy market. Yes, sometimes I miss few reversal opportunities of the market but overall, I don’t face huge losses in my trading! That’s the main advantage of following the market trend.

 

[Lee Mark]

Retracement occur because market losing momentum. Price arrive at distribution phase where it caused by many traders choose to take profit and close positions. However, retrace movement is just temporary. Soon enough price will move to the original trend when it get support from traders.

You are absolutely right; retrace movements are temporary! Usually, market always follow it’s trend after a retainment according to the previous direction! So, I don’t go for retracement offer! I always follow the trend of the market!

 

[Svetlana Loboda]

Yes its only temporary movemenbt opposite from main trend while reversall is opposite direction for long term trend, retracement might occur on small timeframe while reversal occur on big timeframe

Even, retracement trade setups are my favorite; it provides more accuracy.

 

[Tom Latham]

Whatever it is! Till now my focus on trend based trading only! I don’t want to make any new trade against the market tend! As I believe, trend is our friend!

 

[Mark Dahl]

The reversal comes when the trend change with strength. Retracement means the price is moving back against the prior trend before it may start trending again.

 

[Gito Dinev]

Retracement is a small pullback in a strong trend. Reversal is a change in trend.