Correction — is an important concept in technical analysis that can be found in all markets, be it stocks, forex or cryptocurrencies. Understanding how corrections work in a trend can be the key to successful trading. But what is a correction, how does it occur and why is it important to consider their number within a single trend?
Сorrection is a price movement against the main trend by a certain distance. Simply put, it is a pullback, a short-term decrease or increase in price that occurs after a strong impulse move in the direction of the trend. However, corrections do not change the overall direction of the market; they only give market participants a chance to adjust to new levels before the trend continues its movement.
According to statistics, any trend has no more than two corrections on average. After the second correction, the trend often ends, and the probability of its reversal or significant weakening increases significantly. This is key information for a trader. Knowing that a trend has no more than two corrections on average helps to avoid unnecessary trades at the moment when the market is ready to reverse.
Why is this important?
Avoiding trading mistakes.
If you enter a trade after the second correction, there is a high probability that the market will reverse and you will suffer losses. This is one of the most common mistakes of beginner traders who continue to open positions in the late stages of a trend, when the probability of its reversal increases.
Knowing when to spot entry and exit points.
Knowing that a trend will typically not last longer than two corrections allows traders to more accurately identify entry points before the trend begins to weaken. Every correction in a trend is an opportunity for a profitable trade, but only if it is in the early stages of the trend.
In Sell trend;
Start of correction: Sell the beginning of a correction in a trend can be called when a line appears on the chart new minimum. This minimum is the first sign that a pullback against the trend has begun.
Completion of correction: The correction is considered complete when a a new high , which confirms that the price is ready to move again in the direction of the main trend (down in the case of a sell trend).
In Buy trend :
Beginning of correction: In an uptrend, the beginning of a correction can be determined when a new high.
Completion of correction : Completion of correction is the formation a new low , which signals the return of the trend and readiness to continue growing.
Indicator TPSpro TREND PRO is a powerful tool for automatic market analysis that helps not only to determine the trend, but also to accurately identify corrections. It uses an algorithm based on two correct impulses to accurately highlight minimums and maximums, as well as trend change points. This makes it an indispensable assistant in recognizing corrections, which is one of the most important aspects for successful trading.
Tracking the beginning and end of corrections . The indicator helps to see when a correction starts and when it ends. This allows the trader to make decisions based on clear signals, not guesswork.
The Importance of Making Trades Before the Second Correction
Every trader strives to minimize risks and maximize profits. Considering that there are no more than two corrections in a trend, it is important to make trades before the second correction.
The later you enter a trade, the higher the risk that the market will reverse. If you learn to recognize the moments when a trend is in full swing and avoid late entries, this will increase your chances of success.
An important aspect is also the correct exit from the transaction. Indicator TPSpro TREND PRO helps to track not only entry points, but also the completion of the correction, which makes it possible to more accurately fix profits before the trend reverses.
Understanding corrections and using them correctly can significantly improve trading efficiency. Knowing that there are no more than two corrections in a trend on average helps avoid unnecessary risks and make more accurate trades. Using the indicator TPSpro TREND PRO , you can accurately highlight these moments and make informed trading decisions, which in turn will increase your profitability and reduce the number of losses.
