Thread: Corrections

You mentioned �intraday�, which is already specific enough. The exact frame doesn�t matter, as long as you know well on which levels you�re going to operate. I usually use the 1 hour chart to plot supports, resistances and Fibo levels, and then go down to 5 minutes to tune before placing the commands.

Well, the price doesn�t move in a straight line forever, so I guess a �correction� is inevitable. But the problem is when it�s going to happen, and there comes speculation. I think the moment of a correction depends on the current trend: how long does it take? How strong is it? For example, if we�re in an uphill market that has lasted 4 years and suddenly falls by 20%, there�s going to be a lot of long ones that panic. Those scared long ones will start closing positions, causing the fall to grow. In that case, I wouldn�t expect the correction to that fall to come so soon. But if the trend is only one year old, there may be buyers waiting to get into that setback. Great topic, by the way.

Thank you, Merlin. Then it would be necessary to establish: Direction of the trend (high or low?

Exactly! I always wonder, how old is this trend? Old trends, like older people, tend to get sick and die, hahaha. A 5-year-old bullish tendency is saturated with long... everyone who wanted to buy already bought. If the market falls, those same ones will panic and unleash the domino effect. Instead, a strong young trend can be recovered quickly because there are many waiting for an entry. That�s why we see so many aggressive rebounds in new trends.

If I can contribute anything, I think you will find many answers in the Elliott Principles of Theory. I have not seen any other set of rules so detailed about price projections and setbacks. If you combine it with a solid basis of technical analysis and Japanese candle reading, your chances of winning will be triggered.

These concepts that are coming out are the ones that you should be clear about when looking at the market. The whole price movement is a zig-zag. If you don�t understand that, you�re going to be lost. For example: it�s not sold when it goes down, it�s sold when it goes up into a downhill. It seems illogical at first, but it�s fundamental. That inverse logic is key to survive here. Trust in the price.

What they mentioned about the age of the trend seems very interesting to me. I had never thought that an old trend could be �saturated� by traders. It makes a lot of sense now that I think about it. So, would it be logical to think that deeper setbacks usually come when there is no one else left to buy or sell? Is there any concrete way to measure that or is it only deduced by price behavior?

I have started looking at weekly graphics to see those �old trends� they talk about, and I notice that when there is a strong break then there comes a kind of pause or retreat, but not always. Is there any rule to know if that pause will be just a break before we continue or if we are already facing a change of trend?

I still don�t understand why some setbacks reach 61.8% and others barely touch 23.6%. Is it dependent on the strength of initial movement or external factors? I�m trying to get my strategy to include a logic of depth of correction, but it seems more art than science...

Do you think corrections are more predictable in pairs with high liquidity like EUR/USD or do they also work the same at exotic crossings? I would love to apply this theory to pairs like USD/MXN or EUR/TRY, but I am concerned that noise and volatility make it useless.