Cancellation or correction? That’s the question
Everyone wants to build a new
trend from the beginning. If a trader holds a position in line with the
current trend, he / she wants to close it before this trend reverses. However,
the beginning, it is very difficult to distinguish the inversion from a simple
the correction. False judgment can lead to losses. What are the solutions to
Try Anaytics for better tradingCorrections
A correction or,
in other words, the relatively short-term decline or retracement of
the market in the opposite direction to the main trend. A correction will be made
bearish trend, while in the bearish trend a correction
Corrections appear as
market is either the overbought or oversold area, which can be seen from the readings
oscillator. In addition, there is therefore called the horizon correction, which is
also called the market side or the beach. It takes place when the
some of the assets and its balance sheet of supply of each other.
When a correction is on the price
refers to the initial trend. Beginners are often advised not to trade counter
the main tendency as such aggressive negotiation requires experience and psychological
The setbacks are always relative
because they are always closely related to the period of time. Thus, the correction
on the weekly chart can be seen as the main trend on the daily chart. All
depends on the scale. When changes in scale, the different techniques of analysis
models may appear.
By extension, a reversal differs
of corrections by its length within the same period. In other words, while
the correction is only temporary, the reversal means that the trend has shifted towards the
opposite: the upward trend to the bearish trend or vice versa.
When you see that the market
makes a countertrend move, the first thing to do is to classify them. Many
traders constantly think that such a movement is a correction or a
the inversion. Yet, asking this question is the first step in a conscious approach
There are some things that
help to differentiate between correction and cancellation:
preceded by a large market move, a push up or down,
while reversals may occur at any time.
Corrections are not
depend on fundamental factors, whereas the recovery is often preceded by a
highs and lows. If the price goes beyond this, it can be the signal of a reversal of trend.
Conduct a visual analysis of
the market. When, during an upward trend of the low-top marker,
an important caveat. The first low decline will be the confirmation that the
the bullish trend is more.
Tools to use
There are several techniques
which allow to measure the depth of the correction: Fibonacci levels, pivot points,
the trend curves. When the retracement price is contained by 38.5% of Fibo, the current
the trend is quite strong.
If the market goes above 50%,
it could be a reversal of the trend. Levels of Support and Resistance, which are provided by
pivot points also act as a starting point for a new trend. Trend curves
are also very useful. If the market has broken through a trend line, the possibility
of a trend change is important.
In all these cases,
of a line must be confirmed. The best of the confirmations usually come from
the price action: the breakthrough of the candle should close below the violated. A
the ideal situation is when the broken line is controlled, but the price does not
back / above it. Breakthrough confirmation can also come from technical
indicators and volumes.
Although the forex market
merchants offer only a very reduced version of volumes, even tick volume can be
help. When the trend is not accompanied by an increase in volumes and,
counter-tendency trips are done, it’s a sign of turnaround.
Also, keep your eyes
open for reversal of patterns — remember that they make sense only after a trend
and generally do not operate in the situation of a flat market. Corrections may
contain the inversion of the candlesticks, while if there is a graph style inversion, then
chances are you are dealing with a trend reversal.
Trend indicators may also be