If you already hold long positions, recognising end of the uptrend is extremely important for position exit timing. To be able to recognise signs of weakness at the top of the market can help you to anticipate trend reversals. By anticipating trend reversals your position timing will be improved tremendously which will most definetely lead to increased profits. You will be able to exit with most of the profit, minimalise loss and enter new trend with accuracy and confidence.
4 main signs of supply (weakness) that could reverse the uptrend in forex
Buying climax.
Flat candles reaching new high in uptrend, accompanied by extremely high volume. Huge activity represented by volumes, lacks effect manifested by clear bullish move, that would have been present in healthy uptrend.
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Flat candle downwards reaching accompanied by very high volume (volumes forex indicator). The candle is immediately followed by sign of weakness - clear and strong bearish candle.
Money making manoeuvre. Tall candles often times reaching new high in price development, with very high volume. Candle closes near its bottom, creating very narrow candle body, with extremely tall upper wick. Upper wick often times briefly penetrates strong resistance area.
Suddenly high volume on candle up, immediately followed by down candle with even higher volume. Second candle (down) closes below open of previous up candle.
This four signs all signalise the same process. Trading public flocking into the uptrend that is just about to end. Encouraged by media, they all see the raging bullish market, often times overlooking massive resistances in higher timeframes.
What is going on at the end of the uptrend ?
Crowd is not realising that media are sponsored by market makers. Smart money need to distribute their positions (liquidate long postions) at the top of the uptrend. Positive news are used to encouraged the crowd to continue buying.
After we experience substantial upward move in forex, and price has reached new maximum, weakness often comes as flat bodied up candle with ultra high volume. If high volume signalised mostly bullish activity (buying into the uptrend from smart money), candle body would be tall.
Volumes indicate extremely high trading activity with no result in uptrend continuation. Flat candle body tells us that the price was pushed down by massive selling. The fact that price reached new high tells us that movement was not caused by locked in traders.
Learn more about candle formations. Improve your trend identification ability by using trendlines (drawing trendlines) and forex indicators. Forex indicators such as Alligator and MACD can help tremendously with trend reversal confirmation.
