How Do I Interpret a Retracement on Upward Trend and Downward Trend?

How Do You Trade a Retracement on Upward Trend and Downward Trend?

The price of a instrument does't move upward or downwards in a straight line. Instead the price moves upward or downward in a zigzag pattern called a trend - in this pattern the price moves up-ward in a trend then it pulls back before it resumes the trend direction - in a downward trend the price moves downward in trend direction and then retraces before resuming the trend direction.

What is retracement? A forex price retracement is a pullback of the price before the market resumes original trend movement.

Trade Example of Zigzag Price Movement:

The example below shows price moving up in a zigzag pattern showing price trend and price pullback.

The example below shows movement in an upward market and price pullback.

What is Retracement?

What's Retracement Trading in FX?

1-2: Price Moves Up - Trend Direction

2-3: Price Retracement

3-4: Price Moves Up - Trend Direction

4-5: Price Retracement

5-6: Price Moves Up - Trend Direction

The pullback of price is illustrated on the above example - this represents a price retracement in an upwards trend.

How Do I Analyze a Retracement on Upward Trend and Downward Trend?