Penelope Hughes

January 24, 2020

How do you use a retracement to your advantage when you are trying to get in on a trend?
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Many traders wait through the first retracement when they believe they have spotted a trend, and then enter only after that retracement is complete. A completed retracement tests support or resistance, acting as a confirmation of the direction of price.

For example, maybe you are interested in buying gold, because you believe that you have a signal which is saying that gold is going to break out of its ranging channel and the price is going to skyrocket. You could immediately get into a trade, placing a β€œbuy” order on a binary option for gold. But then when price retraces, you might find yourself losing if the option expires during the retracement. There is also the possibility that you are wrong about the trend in the first place and the signal you are seeing is a fakeout, not a breakout.

You could wait for the initial retracement to take place, and then enter the trade, buying the gold. You may find you have better fortune this way, since market will have tested the counter-movement, support will have held firm, and then the price of gold will go on up. Just remember there will be retracements along the way, even in a strong trend.
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