Why You Should Be A Retracement Forex Trader

Retracement traders trade directly against the trend at strategic price levels. This practice is often referred to a fading the trend. These traders often are hunting the trend turning points in the Forex market. It is no secret that most of the most successful traders in Forex are retracement traders.

Why are these traders so successful? In most cases trading against the trend is a self taught skill requiring a mixture of having a special psychological, against the trend philosophy, coupled with a intimate knowledge of market behaviour.

Once you have a good knowledge of market behaviour and understand what makes trends stop and reverse these opportunities are not difficult to spot or anticipate. In general turning points occur when there is a huge unexplained volume increase in the market or near announcements or at the opening and closing of markets and at major support & resistance levels.

When retracement trading one can often use much smaller stops than with conventional with the trend trades. This offers exceptional return on risk percentages. The fact that the turning points are so well defined using the approaches mentioned above make this possible.

Retracement or turning point trading is the one way that a trader can capture up to ninety five percent of a trend. Turning points techniques can be used as both entries and exits. This makes it possible to catch huge percentages of the total moves.

There are many forex trading techniques that are being promoted and taught. Most are, with the trend techniques that require twenty five to fifty percent of the trend to identify that it is a trend in the first place. Often a reversal of the same magnitude is required to identify that the trend is over.

There are two approaches to trading turning points. You can use the exact estimated turning point as your entry using this approach. This requires a degree of accuracy but can be done when using volume and support based principles. Channel trading often results traders catching most of the move.

The other approach is to wait for some sort of confirmation before committing to the bounce or turning point. Certain approaches force this as the confirmation occurs after the bounce has happened and not at the bounce point. Using candle sticks is a good example of this. You can only enter after the bounce has happened and the spike or candle formation confirms that.

Both approaches have their merits.

There are however many challenges with Trading Turning points or retracements. Psychologically, it is often scary as it is compared with standing on a railway track in front of an oncoming train. Thi sfear is soon overcome when traders make their first profitable transaction.

When you have experienced the low risk, high return benefits and the success ratio, you become soon mopre relaxed with this trading approach. It is often like being very scared of a wild roller coaster ride and then you just want to do it again and again after your first ride.

These types of transactions can fail. One of the biggest fears Forex Traders have about trading is the fear of failure. Some traders using some of these approaches have only a sixty percent success rate and yet they make huge amounts of money. This is so because they make twice or three time more on their winners than they lose on their losers. You need to know how to deal with losing if you are going to trade the forex market.

Generally accepted Forex trading and training concepts do not cater for retracement trading very well. traders wary of trading directly against the trend Expressions like "let the trend be your friend". Against the trend techniques are generally not taught as often as with the trend techniques. This is because the indicator based, trending techniques are seen as being easier and safer to teach to new traders.

Hopefully you will consider the merits of becoming a retracement Forex trader after this article

About the Author

Alex du Plooy is a trader for Expert4x ( http://www.expert4x.com ) and has regular live trading webinars to discuss as demonstrate forex trading techniques in action ( http://www.forextrading-alerts.com ). He regularly contributes to videos, articles and systems promoting techniques and trading approaches to help and assist Forex traders.

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