Why is Retracement important and how to identify it?
While trading, you might be aware of the breakout of support and resistance in the stock market.
Here is a brief explanation of support and resistance in case you don't know:
- Resistance is the level at which a stock can no longer rise.
Support is the level below which a stock can no longer decline.
If the stock prices continued to rise or fall, the resistance or support is referred to as a breakout.
Many seasoned traders advise waiting for a retracement if the stock makes a breakout. (A retracement is a brief reversal of an overall trend in the price of a stock.)
Retracement allows you the opportunity to buy, sell, or hold a position in that specific stock. There will then be a possibility that the trend will continue. Consequently, you can also reduce risk by lowering your losses and hence your risk-reward ratio will be perfectly balanced.
Thank you.
Here is a brief explanation of support and resistance in case you don't know:
- Resistance is the level at which a stock can no longer rise.
Support is the level below which a stock can no longer decline.
If the stock prices continued to rise or fall, the resistance or support is referred to as a breakout.
Many seasoned traders advise waiting for a retracement if the stock makes a breakout. (A retracement is a brief reversal of an overall trend in the price of a stock.)
Retracement allows you the opportunity to buy, sell, or hold a position in that specific stock. There will then be a possibility that the trend will continue. Consequently, you can also reduce risk by lowering your losses and hence your risk-reward ratio will be perfectly balanced.
Thank you.
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