Forex Trading Reversal
When a pair moves a reversal or reverses direction, it can be interpreted as a change in demand from that currency and inform the trader that at the level or area of the reversal is the support or resistance area. Forex trading techniques with a wait for reversal can be a technique that provides a profitable opportunity if the trader is able to identify the initial signs the price will reverse direction.
Identifying these price reversal signs is not an easy thing. Even traders can get stuck and not always accurate. However, there are several analytical tools that can be used to identify whether prices are approaching the peaks or valleys so as to help the trader to calculate profitable opportunities.
Combination of Price Action (PA) and Oscillator for reversal identification
Many forex traders use the oscillator indicator to let them know when a pair is overbought or oversold (oversold). This indicator is called an Oscillator. The problem is the price may remain oversold or overbought for a long time. So the oscillator can not always be used but requires some additional confirmation that a reversal is possible. This is where PA analysis is very helpful and the use of candlesticks to show that prices are really weak and ready to turn around. The combination of PA and Oscillator will greatly increase the chances of successful trading.
The use of oscillators can also identify divergences in prices and indicators. Divergence is when prices move higher high and lower low on price charts but oscillators move differently. This is a classic setup for price reversal and indicates that the market is weakening or at least a correction will appear.
Use the previous support and resistance area
If you look at the chart and identified there is an area where previous price reversed direction then there is potential price will reverse direction in that area. This area can be a support area and previous resistance. Globally, this is an area where many traders have placed buy and sell orders on the market and created strong price moves in the opposite direction. But should also be wary of this area could be a stop hunter area.