04 July, AtoZForex – Many traders often quote an old adage term of “buy low, and sell high”? How often do traders attempt to buy low but end up getting burnt? So, is it a good strategy to look for Forex market reversals and how do you find Forex Market Reversals? In this Live Forex Training have tried to identify how to find Forex market reversals and profit from these opportunities in three simple steps.
Now, if you are wondering how to find Forex Market Reversals in 3 simple steps, this is how you do it:
- Simple Moving Averages (SMAs) 50/200 and 20/100
- True Fibonacci Waves developed by Yagub Rahimov
Find Forex market reversals using SMAs
Moving averages are used in many different ways, including to find Forex market reversals. When the price is far from either the 100 or 200 SMAs then we could look for reversal levels.
When we use 20 and 100 SMAs on a volatile and trending market, we would look for the price to touch 20 SMA for a trend continuation. However if the market is fairly calm we would look for a test of the 100 SMA as we discussed during the price action trading training in June.
Forex market reversals using True Fibonacci Waves
We look to combine the SMA setup with the True Fibonacci Waves to make pending orders.
Looking at a weekly chart, we draw Fibonacci retracements on a true Fibonacci wave. True Fibonacci wave is a set of candle all going in the same direction made up of a Fibonacci numbers (e.g. 3, 5 or 8 candles).
Then we would look at a daily chart and try to combine possible Forex market reversals from moving averages and Fibonacci level. In the example above from the video we have a combination of 100 SMA and 50% Fibonacci retracement level. In this case, we could either sell at the touch or wait for a confirmation of a break below the 100 SMA and short the pair then with a Stop Loss above the highest high. Our target would be based on the True Fibonacci level the price bounced off. In this case it was the 50% level so the immediate target would fall on a custom Fibonacci 88% retracement level.
After the targeted level, we could expect a temporary correction from the major level and look for another entry in the trend direction. From the custom 88% Fibonacci retracement level, the price is likely to reverse to 76.4% and possible to 68.1%. Therefore, in order to continue to follow the trend we could place a sell limit order either at the 76.4% or 61.8% levels, which should be confirmed by the slope of moving averages on an H1 timeframe.
Find Forex market reversals using MACD
In order to determine Forex market trend and reversals using MACD, we’ll look at weekly, daily and hourly timeframes. Weekly and daily timeframes are used to determine the trend in Forex market, whereas daily and hourly charts are used to spot price corrections and reversals.
On the weekly timeframe, the most important thing to look for to determine if the trend is bearish or bullish is the direction of formed MACD bars relative to the 0 line. Then, check if they are form below or above the signal line. If the bars form below the signal line it shows a trend correction.
To illustrate, if weekly MACD bars form above the 0 line but below the signal line, this implies a bullish trend but warns of an ongoing correction. Therefore, we would look for daily MACD bars to break above the daily signal line from previous downward move in order to look for long opportunities.
Meanwhile, to find Forex Market reversals we look for convergence or divergence between MACD and price action. From an example in the video, USDCAD was trended lower but MACD made a higher high; so at that point we would for price correction. Worth to note that if MACD fluctuates around the 0 line then we need look for a break of a support or resistance in the direction of the trend defined by weekly MACD to confirm trend continuation. The 0 level shows instability in the market and often large breakouts occur.
To sum it up, majority of traders fight against the market and look to go against the trend and often loose. Unfortunately, these are 95% of the traders. Hence, don’t fight the trend and keep on the lookout to find Forex market reversals. Remember, when everyone is fearful – be greedy, and when everyone is greedy – be fearful.
Think we missed something? Let us know in the comments section below.