Understanding price swings is a great skill to have for online Forex trading.
The downtrend price swing, retracement, and potential extension are the exact opposite of the uptrend price swing, retracement, and potential extension explained in my last post.
We all benefit from multiple examples, so if you want to succeed in Forex trading, it’ll crystallize your understanding.
The Downtrend Price Swing
A downtrend price swing is a wave (swing) that starts at the high and stops at the low. Remember that to qualify as a downtrend the market must be making lower lows and lower highs. Following the down price swing is a reaction, also called a retracement of the down swing.
This reaction becomes an up price swing, which is also followed by another reaction (also called a retracement of the up swing). This happens in Forex trading frequently (just look at practically any Forex price chart).
The retracement of the up swing becomes a down price swing that can either lead to a sideways movement or an extension (of the overall trend). The retracement of the up swing often moves sideways before it makes a new low (that is, before it becomes an extension of the overall downtrend).
As it is important to not lose sight of the original price swing in an uptrend swing, it is also important to not lose sight of the original price swing in a downtrend swing.
The market does not make an extension (extending the overall downtrend within which the swing exists) unless it passes through the last level of support and makes a new low.
The market can move sideways within the original swing before breaking or continuing the downtrend. Always keep in mind that there are swings inside of swings and trends inside of trends.
You’ll be much better at online Forex trading when you can fully understand this concept. Don’t lose sight of your long-term outer and outer trend lines as well as your inner trend lines.
In the next blog post I’m going to explain how the Fibonacci sequence can be applied to online Forex trading
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