And falling some more.

Then falling some more.

And then it starts going back up!

Have you ever been in this situation before?

It looks as though price action may be rallying and a buy trade is in order.

WRONG!

The “Smooth Retracement has hit you!”

Nobody likes to be hit by the “Smooth Retracement” but, sadly, it does happen.

Why?

In the above example, the forex trader failed to recognize the difference between a retracement and a reversal.

Instead of being patient and riding the overall downtrend, the trader believed that a reversal was in motion and set a long entry.

Whoops, there goes his money!

Check out how Happy Pip got fooled by the “Smooth Retracement” in one of her AUD/USD trades.

In the next lesson, you will learn the characteristics of retracements and reversals, how to recognize them, and how to protect yourself from false signals.