What is a Trend Reversal?

Definition and Meaning of a Trend Reversal & How to Trade a Trend Reversal

In trading the trend line break signal is used to signify a market reversal signal. When a trendline is broken then it means that the momentum of the current trend is reducing & the current trend might reverse and start moving in the opposite direction or form a consolidation chart pattern before it reverses.

Market Reversal Signal

After price has moved in a particular direction for an extended period of time within a trend it gets-to a level where it stops moving within the market trend. When this occurs we say the trendline has been broken.

Since the trend line is the point of support or resistance then we expect the market to move towards the opposite trend direction. When this happens traders will close the open trade which they had bought or sold. This is known as taking profit.

Up trend Reversal

When price breaks-out up-wards trendline (support) market will then move down or form a consolidation pattern before moving downwards.

What is Upward Trend Reversal in Gold Trading? - What is a Upward Trend Reversal?

This upward trend line break reversal signal is considered to be confirmed with the reversal pattern of lower high is formed on the price chart. This also provides a trading opportunity to go short once the trend line broken.

Trading Market Reversal Signal

When price breaks-out down-wards trendline (resistance) market will then move upwards or form a consolidation pattern before heading upwards.

What is Downward Trend Reversal in Gold Trading?

This downwards trendline break reversal signal is considered to be complete with the pattern of a higher low is formed. This also provides a trading opportunity to go long once the downwards trend line is broken.

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

To trade this trend reversal setup as a trader once you open a new trade in the direction of trend reversal the price should immediately move in that direction, in a price break out manner. This means that the market should soon move in that direction without much resistance.

If on the other hand the market does not immediately move in the direction of the price breakout then it is best to close out the trade because it means the current trend is still holding.

Another tip is to wait for the trend line to be broken and for the market to close above or below the trend line so as to confirm this trend reversal.

What happens is most traders open trades waiting for reversal signal even before the prevailing trend is broken, only for the price to touch this trendline & for the current market trend direction to hold & gold to continue with the current market direction.

Therefore, when trading this trend reversal setup it's best to wait until the price break out has been confirmed by price closing above or below the trend line, based on the direction of market.

• Up-wards Gold Trade Market Direction Reversal - trendline reversal signal is confirmed once the market closes below this upward trend line, this should be the correct time to open a sell trade, so as to avoid a trade fake out.

• Downwards Gold Trade Market Direction Reversal - trendline reversal signal is confirmed once the market closes above the downwards trend line, this should be the correct time to open a buy trade, so as to avoid a trade whipsaw fakeout.