If you are new in the Forex market, you will hear the word retracement or retrace more often. You must know why it’s so important and what price retracement is, you should also learn the use of it in the market. To understand the retracement, you need to learn about the trend. When the market moves in a specific direction, you can call the market is in a trending move. During the trending movement of the price, you will see minor pullbacks against the major trend and that movement is known as a retracement.
In the beginning, you may find it difficult to understand properly about the term retracement but it has an important role in the Forex market so, if you want to trade profitably then you must give importance to it. This article will help you to get some ideas to understand the retracement in a better way.
What is retracement in the Forex Market?
The concept of retracement is very important in the market. Retracement means the movement of the price, it may be either up or down. But the movement will be always against the major trend. By understanding the retracement you can know when the market will start moving in favor of the trend. To be precise, retracement points are used to find the exact entry and exit points for the trade. Even if you use the copy trading service, you will notice the elite traders at Rakuten is using the concept of major retracement to fine-tune the running trades.
By observing the retracement you can enter the market at a good price, they give an optimal placement for the stop loss, better risk-reward and many more. The retrace entry is known as the safer entry type, with the help of the retracement entry you can get the best entry price and also good risk management.
Retracements also help in stop-loss placements
Many traders place their stop loss at the wrong point and fail in the market but with the help of retracements or by the option to wait for market pullbacks you can get a higher percentage of point to enter the market and even your stop loss will be on a safer point in the chart. For instance, if you use the Fibonacci retracement tool, you can easily place the stops by using the 50% and 61.8% retracement levels.
When a market retraces it gives your stop loss not to be the reason to knock you out from the trade. Retracement helps you to get a safe zone by giving you more chances to do trade in a better way without the fear of losing in a trade for a wrong stop loss placement.
Benefits of using the retracement trading
There are many benefits of using retracement trading, retracement gives a higher probability entry. At the retracement trading, the price bounces for a certain point and that’s the time mainly the pro traders take the advantage and trade profitably.
The retracement also gives a better risk-reward and a good stop loss placement. You can set your stop loss at a further point on the chart where you think the market will hit and this gives a more chance of working out and to make profits. Retracement gives a better risk-reward by allowing you to place a tighter stop loss.
Retrace entry also gives the traders to enter the market with more room and to trade profitably. The more you will learn and understand the use of retracement in the market, the higher the chance will be to trade profitably. You can also get a clear concept about the real-time price action signals by learning and boosting your skills with the retrace entry. Every trader should give importance to the retracement entry to trade profitably. And if you find it hard to learn, switch to a demo account so that you can learn things without risking any real money.