Temporary trend reversal (correction, pullback)

Temporary trend reversal (correction, rollback) - in stock trading is a temporary reversal of an established trading trend in the so-called moments of overbought and oversold market, when traders and investors decide to fix already profitable positions, because the activity of the initial movement has greatly decreased.

Usually such a temporary reversal or corrective movement is half or a third of the main movement. After that, the main trend movement regains strength, recovers the pullback and strengthens, allowing the trader who caught the movement to make a significant profit.

How to trade on a trend reversal and correction?

Trading on a temporary trend reversal can be associated with large losses. It is not for nothing that the market says "The trend is a friend". A corrective movement can be interrupted at any time, since it is actually caused by profit taking. If traders have decided that the movement has not yet been recouped, they will go in the direction of the main trend again, hunting for more profits at more favorable levels.

How to determine the trend reversal and correction?

 

There are a lot of indicators, showing a trend reversal. Most often this role is played by simple oscillators, available in any terminal. For example, Stochastic or MACD that show overbought and oversold market. Detecting such movements is much easier than you think.

Usually when a trend reverses, the indicator breaks out of these levels very confidently. In case it quickly reaches the opposite level, then we are facing a temporary trend reversal, if the movement drags on, the trend can probably change direction at all. If the retracement movement was supported by the market and it lasts for some time, then we are talking about a change in the trend. Profitable trading with oscillators requires careful observation of their signals and a little experience.

Often, to determine the reversal of the trend traders use by analyzing candlestick patterns or shapes forecasting.