14 March 2019

Targets and Retracements in Forex Trading

The core strategy of Forex or any trading is the go long and assume that the market will rise and go short and assume the market will fall. The problem with Forex is that this market (and other markets) retraces and can retrace away from the opening position, opposite to the desired direction, even if it does at some stage move in the direction of the trade. What retracements mean in practice for a trade, is that they can make targets problematic. This is because a retracement can to a greater or lesser extent, change what are realistic moves for the Forex pair.
A retracement does not necessarily mean that the Forex pair cannot attain a target, it just means that a target needs to be considered in light of patterns and time, as patterns can alter the time taken for a move to take place. However the potential for a target to be reached can be increased by retracements. This is because it is normally to be expected that to get from A to B, patterns will emerge.
If a pair moves in a directional manner, it may reach the target, but if it does not, then it could be expected that volatility may alter to the extent that an entirely new direction emerges (i.e. the time factor can be crucial). The most directional moves can be seen in news trading, but these can result in sharp changes in the market resulting in oscillations and reverses, i.e. volatile patterns. So the very complexity of the way the Forex market moves can be the way in which a desired move may be attainable.
It is one of the revelations of Forex trading that while paths from A to B are complex, they can be much less fragile that they seem. But part of the reason that some may use robots to trade on their behalf, is that to the human eye these paths look fragile, until the patterns have formed. While a trader may trust in their analysis, they may also not heed this analysis as well. Part of the reason for this is that the reliable patterns can suggest different outcomes to the trade as they form. The market can also change, perhaps from input from economic data, which reshapes it, to the extent that the patterns which were forming, change. This is a reason why human discretion even if allied with the use of trading robots, is important.