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Reversal

A reversal occurs when the price direction of an asset changes, shifting from an upward trend to a downward trend or vice versa. Reversals can be triggered by various factors, including changes in market sentiment, economic data, or technical indicators. Traders use reversals to identify potential entry or exit points in the market, as they indicate a shift in the underlying trend. Reversals differ from retracements, which are temporary pauses in a trend rather than a complete change in direction.

Example

A stock that has been rising for several months experiences a reversal after a disappointing earnings report, causing its price to decline sharply.

Key points

• A change in the price direction of an asset, from an upward trend to a downward trend or vice versa.

• Indicates a shift in market sentiment or underlying factors.

• Different from a retracement, which is a temporary pause in the prevailing trend.

Quick Answers to Curious Questions

They use technical indicators, such as moving averages or trendlines, and monitor economic data or news events for signals of a trend shift.

A reversal is a complete change in the trend direction, while a retracement is a temporary pause or correction within the existing trend.

Reversals indicate opportunities to enter or exit trades based on changing market conditions, allowing traders to capitalize on trend shifts.

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