1. SUPPORT AND RESISTANCE

For trend trading traders, it is very important to identify important support and resistance. At these critical supportive resistances are likely to stall or reverse.

Important support resistance levels can be the huge peaks and lows of the previous days and weeks. Or is the resistance support resistance on a large time frame. So when the price gets close to these levels, traders need to be cautious when trading with the trend.

The picture below is the GBPJPY pair, which can see the price failed to break the support below.


2. PRICE PATTERN

Price patterns are clear and simple messages from the market. Some patterns confirm the possibility of a trend continuation, while others warn us of a possible trend reversal. For example, a bullish and bearish candlestick pattern, a two or three top and bottom pattern, an inverse head and shoulders pattern, and so on.

When reversal patterns appear, trend trading traders should be very cautious about pending positions or avoid trading in the direction of the trend when the trend is confirmed.

As the example below, we see reversal patterns like head and shoulders, two bottoms, a wedge pattern. After the pattern appeared, the market reversed strongly after that.


3. BREAKDOWN OF THE TREND LINES

Trend lines are a very useful tool in identifying a trend and measuring its strength to move.

In a trend, there can be the main trendline of the major trend, and the sub-trendline corresponding to the smaller trend is in the main trend. If the market breaks the smaller trendline, the trend is unlikely to change. The price can look for a larger trendline.

However, when the price breaks a trend channel, it is an important clue that indicates an upcoming reversal signal. Although we need more confirmation for a potential new trend, the old trend is no longer the same.

When you see the main trendline of the trend as well as the breaking of important support and resistance, we shouldn't trade in the old trend anymore.


4. DIVERGENCE

Divergence is a signal that the momentum to create a bottom in the trend has weakened. Divergence is also a potential reversal signal.

When the price makes a higher high during an uptrend or a lower low during a downtrend, but an oscillator is the opposite, it produces a Divergence signal. Oscillators are essentially measuring price momentum, so when the momentum doesn't confirm a trend, the likelihood of a trend continuation is lower.

As shown below is the Bearish Divergence on the Awesome indicator. The market makes higher highs while the indicator makes lower highs.


The above are quick ways to help traders recognize a trend change or reversal. Traders can combine these analysis techniques to identify quality reversal signals.

However, you need to understand that the signal is also probabilistic, we will not know if it is true until the market actually digs. The signal only increases the possibility of a reversal but does not confirm the reversal.

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