Trade Talks Rattle Market, Reversal Is Imminent

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Gold Reversal Imminent?

Gold has been relatively supported for the past 2 trading days, ever since price tanked last Friday due to a much stronger NFP print which resulted in USD strengthening immensely. This rally may be a temporary pullback – a rather common occurrence especially after such an extended bearish move. However, there are reports that physical traders are buying up huge quantities of the yellow metal just above 1,200. 1,200 is also the estimated cost price per ounce it takes for miners to extract and refine gold. As such, based on the laws of economics, should gold prices hit below 1,200, miners will no longer be incentivized to produce more gold, resulting in a lower physical output and hence higher prices. Of course, commodities derivative products can be totally disconnected from the underlying physical price (Oil Futures, I am looking at you), but it will be highly difficult for ETF gold prices or Futures/CFDs to push lower should the 1,200 physical price not budge.

XAU/USD 1″ width=”580″ height=”401″>
Hence, given this outlook, the pullback in Gold prices may easily become a stronger correction rally. From a technical perspective, Price does not really have any immediate resistance, with 1,330 the closest on the chart. Stochastic readings also suggest that a bullish cycle signal may occur soon, with Stoch lines pushing above the signal line.

Should price clear 1,330 this week, the likelihood of the Stoch reading clearing 20.0 would be high, which will form a proper bull cycle signal to open up bullish targets closer to 1,400. Furthermore, should price manage to reach above 1,300, there will be the formation of a Morning Star, which will increase the likelihood of a strong bullish reversal.

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CRUDE OIL Major downside reversal maybe imminent

The medium to long-term technical picture of the Crude OIL is exceptionally interesting at this point, where the likelihood of a full fledge downside reversal has increased significantly. However, the short-term picture is still positive and pointing upwards for a small scale push, towards $75.5. Our official trigger level for the potential downtrend is at $73.82. Stay tuned.

Price chart of USCrude in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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Written by

Professional Forex Trader, Founder and CEO of The Chart Wizard

Deeper political crisis in Italy encourages EUR/USD bears to storm the support at 1.146

The discrepancy between the USD/JPY and the US debt market rates suggests sales of treasur.

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Trading reversals is a popular trading style. Traders tend to wish for picking the exact bottom and top and catching a strong reversal. One of the issues is that reversals are not that common. Another challenge is that trading reversals actually requires more precision than trading with trend setups.

This article explains the key factors when trading reversals and what traders should focus on.

I know. My first tip with trading reversals is. actually not to trade them. My feedback is rooted solely in my own mistakes.

Trading reversals might seem exciting, but it requires more experience. In my view, traders are better off with learning how to trade with the trend rather than picking exact turning spots.

Trading with the trend also requires developing a strategy and a trading plan, but ultimately, it’s easy to observe by adding a trend channel or 1-2 moving averages on the chart.

Finding reversal spots requires a trained eye to spot a Support or Resistance zone where the price will stop and turn into the opposite direction. This is easier to do once you have been trading for a while, but not on your first day.

Tip #2: Use Candlestick Patterns

As mentioned above, picking tops and bottoms is difficult, but there is a way for traders to recognise turning spots – candlestick patterns.

Here’s an example: the EUR/USD is approaching 1.25 key resistance level, but you are unsure to trade the reversal right at 1.25. The alternative could be to wait for a bearish candlestick pattern on the 4h or daily chart.

Once a bearish candlestick pattern appears, traders receive a confirmation from the market that the 1.25 level is, indeed, important. There is a higher chance that the price is responding to the 1.25 resistance, and that it will correct deeper.

Source: MetaTrader 4: Supreme Edition, EUR/USD daily chart, December 22, 2020, to March 1, 2020 – Please note: Past performance is not a reliable indicator of future results.

Tip #3: Find Points of Confluence

The concept of Support & Resistance (S&R) is key for trading. It is part of the market structure triangle that also includes trend (and momentum) as well as price patterns.

S&R becomes more important when multiple levels are clustered roughly in the same area. For instance, a S&R level becomes stronger when a Fibonacci level, weekly Pivot Point, trend line, and Admiral Keltner channel (part of MetaTrader Supreme Edition) line up at about the same point.

It is important to choose a couple of S&R tools rather than use too many. Otherwise, the only thing you see on the chart will be S&R levels, which defeats the purpose.

It is important to follow the following two steps: first, find the S&R tools that work best for you; second, look for confluence.

Tip #4: Use Divergence Patterns

Reversals become more likely when price momentum slows down. Traders can assess momentum strength or weakness by comparing high lows both on the price and the oscillator (watch the video below for more information about reading divergence):

  • The presence of divergence increases the probability of a reversal, but is not a guarantee;
  • The lack of divergence makes it more likely that the a trend continues.

There are a couple of important factors to consider when reading divergence:

  • The higher the time frame, the more impact divergence will have on the price;
  • Multiple divergence is a stronger signal than single divergence;
  • Use divergence in confluence with other reversal signs because the price is able to continue with the trend for a while despite divergence.

Tip #5: Use Chart Patterns

Last but not least, chart patterns are critical for understanding the psychology behind the price movements. Why? Because traders can assess the price flow and movement with deeper understanding.

For example, a bull flag chart pattern informs traders that the price is building a mild bearish correction within a larger uptrend. Traders can try to trade the continuation once the price breaks above the flag pattern. The opposite is true for a bear flag chart pattern.

The flag examples are actually trend continuation patterns, but there are also multiple reversal chart patterns available, such as:

  • Head and shoulders (bearish reversal);
  • Inverted head and shoulders (bullish reversal);
  • Rising wedge (bearish reversal);
  • Falling wedge (bullish reversal);
  • Double top (bearish reversal);
  • Double bottom (bullish reversal);
  • Triple top (bearish reversal);
  • Triple bottom (bullish reversal).

All in all, confluence and patterns are critical aspects when analysing the charts and spotting reversals. The five points mentioned above should help out with trading reversals, but remember to practise first!

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