How to Identify Reversals in Forex


If you are serious about trading forex for a living, there is one thing you must learn which is how to identify price reversals. There are 2 main benefits if you are able to know when exactly the price is reversing.

* You can exit your profiting position and collect the profit before it is taken back by the market.
* You can take a position in the direction of the reverse to make some profit.

Therefore you have to pay extra attention to what I am going to reveal below and here are how you can identify a reversal.

1) Use Candlestick Pattern: There are a few candlestick patterns that are showing sign of reversal in action. They are Railway track sometime also known as Tweezer, Morning or Evening Star, Hammer and 123 Top and Bottom. These are patterns that are formed when the traders knew that they are in the wrong side of the position and then quickly exit and place a trade in the opposite direction.

2) Use Moving Averages: You can also made use of a short term moving average and a long term moving average to help you identify reversal. When the short term EMA cuts above or below the long term EMA, it is a sign of reversal. You can use the moving averages crossover together with candlestick patterns to have a better analysis on whether there is a reversal coming or not.

3) Use Oscillating Indicators: You can make use of oscillating indicator like RSI or Stochastic to help you to confirm reversal. These are indicators that you can use to confirm the reversal that you identify with the above 2 methods. When you identify a reversal in an uptrend, you should look at your oscillator to check if it is overbought or not. If it is indeed overbought, you can wait for the oscillator to point down before you enter a trade. If you are in a downtrend, all you have to do is the exact opposite.

These are the steps that I take to identify a reversal in price and I find them pretty effective. It is better for you to identify reversal in the higher time frame so that you can predict the trend in the lower time frame. With the trend identify, you can confidently ride the trend in the lower time frames. So you can now spend some time to go through the methods stated above and check them out with your charts to see their effectiveness.

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