How to Trade a Down trend Reversal

How to Trade Downward Trend Reversal: How to Identify a Downwards Trend Reversal Signal

Down trend Gold Reversal

When price breaks-out above the downwards trendline (resistance) trading price then will move up

How to Trade Downward Trend Reversal: How to Identify a Downwards Trend Reversal Signal

Down Trendline Break

After price has moved in a down trend direction for an extended period of time within a down trend it reaches a point where it stops moving within the downward trend. When this occurs we say that the down trend-line has been broken & this is interpreted as a down trend reversal.

Since the downwards trend line is the point of resistance and this point of resistance has been broken after a trend line break - we then expect the price to move towards the opposite direction upwards and this is interpreted as a down trend reversal.

When this happens traders will close the open gold sell orders which they had sold. This is referred to as profit taking.

This down trend reversal signal is considered to be confirmed with the creation of higher low. This down trend reversal trade setup also provides a trading opportunity to open a buy trade once the down trendline is broken - down trendline reversal trading signal.

NB: Sometimes when the price breaks its down trend it might first of all consolidate before moving in the opposite direction. Either way it's always good to take profit when the market trend reverses.

To trade this down trend reversal setup as a trader once you open a new trade in the direction of the trend reversal the price should immediately move up-wards in that particular direction, in a price break out manner. This means that the prices should immediately move up-wards in that particular direction of the reversal signal without much of a resistance.

If on the other hand the prices do not immediately move in the upwards direction of the price breakout then it is best to close out the buy trade because it means the down trend is still holding.

Another tip is to wait for the downwards trend-line to be broken & for the market to close above it so as to confirm this down trend reversal.

What happens is that most traders open trades waiting for a trading reversal even before the down trend is broken, only for the price to touch this down-wards trendline & for the current market down trend direction to hold and gold to continue with the current market down trend.

Hence, when trading this down trend reversal setup it is best to wait until the price break out has been confirmed by price closing above the trend line.

• Downwards Market Trend Direction Reversal - this down trend reversal is confirmed once the price closes above the down-wards trend line, this should be the right time to open a buy trade, so as to avoid a trade fake out.