What is a retracement in forex?

In forex, a retracement refers to a temporary reversal in the prevailing trend before it resumes its original direction. It occurs when the price of a currency pair moves against the trend, but only for a short period. Traders often use retracement levels, such as Fibonacci retracement levels, to identify potential support or resistance areas where the price might bounce back in the original trend's direction. Recognizing retracements is crucial for traders to make informed decisions about entry and exit points, allowing them to capitalize on market movements and enhance their overall trading strategies.

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