Reversal Vs Retracement Trading
The understanding of differences between retracement and reversal of stock prices is crucial in making an informed investment decision. While a reversal is the change in the overall trend of a stock’s or asset’s price, which can last for an extended period, a retracement is merely a temporary price reversal that takes place within a substantially larger trend.
In simpler words, reversal means that the price of the asset is likely to continue to move in the reverse direction for a prolonged period. In case of the retracement, the price reversal is temporary.
How is Retracement Different from Reversal?
The differences between retracement and reversal can be analysed based on six points.
- Volume
Retracement is characterised by a small selling volume while reversal is characterised by a large selling volume involving institutional selling.
- Money Flow
Buying and selling interest continues to be present during retracement while it is missing or quite small in case of reversal.
- Chart patterns
There are very few changes in chart patterns in case of retracement, however, there are several significant pattern changes in case of reversal.
- Time frame
Retracement generally lasts for a shorter term and ends within days, whereas reversal can last for a long-term lasting more than a few weeks.
- Fundamentals
The fundamentals remain unchanged for a retracement while they change in case of reversal.
Disclaimer: The information provided is for educational purposes only. Please seek expert advice before making investment decisions.