Forex Supply and Demand Strategies: REVERSAL - ForeXposed

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Wednesday, March 15, 2017

Forex Supply and Demand Strategies: REVERSAL

How do we know the trend has ended? We try to learn a simple technique by identifying the end of a trend and the process of its reversal.
Reversal or change the direction of the trend occurred because the majority of winning trader starting to close his position.
On downtrend, the seller liquidates his positions or known as short covering. Otherwise, in an uptrend, the buyer liquidate long position.

The process of reversal formation is not easy, especially if we're talking about a big trend on the primary frame. What we have to consider is how long the current trend has been running, the length time takes by trend, the greater effort and time required in the process of reversal. The tanker is hard to turn around the direction and need the greater swivel radius than the small canoe.

There are some signs and early warning in the process of reversal:
  1. There is a period of consolidation, where the momentum diminished/lost. The loss of momentum stopping the trend velocity, if it’s was downtrend then the Lower Low is not created again, on contrary, the Higher Low is created.
Forex Supply and Demand Strategies: REVERSAL
  1. On a downtrend, generally, the selling climax was created. On the uptrend buying climax was occurred.
Forex Supply and Demand Strategies: REVERSAL

Forex Supply and Demand Strategies: REVERSAL
  1. Breakout from consolidation zone which opposite with the previous trends direction.
Forex Supply and Demand Strategies: REVERSAL
  1. Generally, the breakout will be followed by a pullback or weak test (can be once, or more) to the previous consolidation zone (red line).
Forex Supply and Demand Strategies: REVERSAL
  1. The price bounces back from consolidation areas and continues its action past the previous High.
Forex Supply and Demand Strategies: REVERSAL
  1. This rising motion will pass through the High of the previous breakout, and at this point, the structure of a trend has changed, and we can say a Trend Change (TC) has occurred. The trend is like a building structure consisting columns, if the columns of the building changed then the building collapsed.
Forex Supply and Demand Strategies: REVERSAL

In any market conditions, always strive to identify market conditions, until we can find out whether it will be a buyer or seller before taking a decision to ‘entry’.