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Student’s Question:
Could you provide a visual example of what might indicate that a pair could be changing direction…retracing? Thanks a lot.
Power Course Instructor’s Response:
While there can be numerous indications that a change of direction might be imminent, let’s take a look at those on the chart below.
Taking a look at the green trendline, we would be looking for a candle to close below that line as a primary tool to make this determination.
Also, take a look at the two candles to the left of the open candle…we see two dojis The dojis indicate indecision and the potential for a change of direction. Some compelling data is beginning to take form.
Looking at the MACD indicator at the bottom, we also see some signs of a potential reversal. We see that the MACD line is “hooking” to the downside but the signal will not be complete until the MACD line actually crosses over the Signal Line and a candle closes to confirm it. (Keep in mind that in trading, “nothing happens until it happens”…don’t jump the gun and anticipate an entry.)
Lastly on this chart we can look at the MACD histogram bars. We note that divergence is present when comparing the bars to price action. Price is going up while the histogram bars are going down indicating that bullish, upside momentum is waning.
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