When to Expect a Reversal of the Forex Market Trend

The changes in a currency price are not marked by a consistent movement in one direction, be it up or down. A price reversal represents the change in the direction in which the currency moves. Thus, it is important for forex traders to closely examine the potential reversals at particular points in the charts available.

Generally, there are three basic points of a potential reversal that can be distinguished on a chart in percentages against the preceded movements, known as percentage retrenchments:

• By using Charles Dow

  A reversal in an upward direction in the currency price is expected after the price has passed down 33%, 50% or 66% of the most recent rise. Traders consider that a correction of the trend has occurred when a reversal after 66% has been experienced.

• By using Fibonacci Constants

  By applying these constants a forex trader may expect a reversal of an upward direction at the downtrend points of 38%, 50% and 62% from the most recent rise.

• By using Gann

  A forex trader should expect a reversal with an upward direction after each 1/8 of the most recent rise during the path down.

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