One of the most popular topics that beginners are interested in is the question of what is a forex correction. How can you define it and how to use it in your trading? That’s what we’re gonna talk about today.So what is a forex correction? If you look at a chart of any currency
pairs, you can see that every trend movement is accompanied by
short-term rollbacks of the price against the prevailing direction. Others.
In other words, the price sharply changes the direction of its movement to the opposite and in
moves against the trend for a short period of time. And then, uh…
comes back to him again.Example of correction on the price chart:
Why does the forex correction appear
There may be several reasons for the price rollback. Let’s look at the basic
of them.In the period of trend movement the price may approach
to a strong level. In such a situation, many traders start to take profit.
For this purpose, they sell on the upward movement, and on the downward one, on the contrary,
are buying. Correspondingly, in the first case, the price starts to fall, and in the second case –
to grow up. But it’s a short-term situation, after which the traffic resumes.
by trend.Also correction can be expected after a very sharp rise or
the price drop. Traders who have opened trade orders in a timely manner begin to record
profit, because they’re fine with it.Large number of stop-losses can also be triggered
cause a rollback.Price correction is often observed before the release of important
the news. Fearing an unpredictable market reaction, traders close their
trading positions.And finally, the reason for the rollback may be the struggle between “bulls” and “bears”. Thus, on the upward trend the bears may try to change the market dynamics, which will lead to a short-term change in the direction of the currency pair movement. In a downward trend, such an attempt can be made by “bulls”.
Correction or trend reversal
The difficulty with rollbacks is that sometimes
they may not be a correction, they may be a change of trend. A method that would help
A trader with a 100% guarantee to determine what is happening in the market
(correction or change of trend), does not exist. And yet, to improve the quality
estimates can be made.As practice has shown, at large time intervals
the probability of correction is always higher than the trend reversal. She’s on a small TF.
is about 50:50.To recognize rollback, many traders use levels
Fibo. It is believed that if the price rollback reaches the level of 50 and then breaks it,
it’s probably not a correction, it’s a trend reversal.Forex correction can be used by a trader to open additional deals in the direction of the trend at a favorable price. But to do that, you have to learn how to recognize it, which comes with experience.Fyodorov’s Inga24.06.2019