Patterns can occur within a downward or upward trend or as marking the beginning of a new trend. There are bottoming, topping and continuation patterns. A “follow-through day” pattern is used by some analysts to identify market bottoms.
When faced with a possible retracement or reversal, you have three options:
structure of your trade, you could hold onto your position. This could lead to losses if the retracement turns out to be a longer-term reversal.
You could close your position and re-enter if the price starts moving with the overall trend again. Of course, there could be a missed trade opportunity if price sharply moves on one-direction. Money is also wasted on spreads if you decide to re-enter.
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