Forex Trading Course Lesson 1 – Reversal Patterns (The Basics)

Once you are attending your Forex trading course, you will realize that the Forex (along with other financial markets) is an emotionally driven market. That is, the market adopts a psychological idea of ​​which way it should go. Forex traders around the world spend years in Forex training programs trying to perfect their ability to understand and identify the reasons for this change in market direction or in other words; it's market psychology. These changes in direction are commonly known as reversal patterns.

A common mistake made by students who have recently completed a Forex trading course is that every reversal pattern will change the direction of a trend. This is almost never true. Trends run at their own pace and depending on its strength can have quite a long stopping distance when the breaks are applied. Once you notice a reversal pattern in your Forex training session's charts, take note of it and analyze what happens after. Is there a confirmation? Are your indicators suggesting the market is over-bought or over-sold?

In any case, the market tends to change direction slowly. In an up-trend, you may see a temporary change of direction downwards only to see the market rally back up again. In your Forex trading course you should learn not to accumulate or guess that the market will start going downwards in this instance otherwise you will experience some heavy losses. Similarly, the Forex market can also start going sideways for a while (depending on your schedule time period) only to shoot up again once the bulls seize control again.

In this Forex education article the aim is to communicate one main message. Do not think of reversal patterns as patterns that actually reverse a trend. They are more of a warning that the current trend may 'change', not reverse back into the opposite direction. Despite the market forming several reversals patterns the psychology may still be hard to break. This is why adapting your trading technique to mirror the changing Forex market environment is absolutely critical in your Forex training. The market can change its mind a number of times before deciding which way to go. Do not make the most common rookie mistake of all – chasing the market. Let the market come to you and tell you it is on your side. For instance, in a long up-trend a reversal signal should not convince you to sell. Instead, try and look for a reversal back in the original direction of the trend to place a buy as the original trend was a lot more powerful. Whilst this is simply an example, it should give you an idea why new Forex traders can experience losses as they have made a decision to sell based on one reversal pattern.

Source by Graham Watkins

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