What is a Market Correction?

What is a Market Correction?

A correction is a counter-trend move that retraces a portion of the prior advance or decline. Corrections often provide traders with opportunities to enter at better prices within the broader trend.

Traits of Corrections

• Size: Typically retraces 38 to 62 percent of the prior move.
• Time: Shorter than the impulse move that precedes it.
• Structure: Often unfolds in three-wave patterns or tight ranges.
• Volume: Participation tends to decline compared with the impulse.

Trading Corrections

• Trend-following entries: Enter on resumption signals such as break of a corrective trendline.
• Counter-trend tactics: Advanced traders may fade corrections with strict risk controls.
• Wait for confirmation: Avoid guessing; let price action show direction.
• Adjust sizing: Corrections can extend unexpectedly, so risk small amounts.

Practical Playbook

• Define context on higher timeframes, then execute on intraday charts.
• Wait for confirmation (acceptance, momentum, or confluence) before entry.
• Size positions conservatively and place stops at clear invalidation levels.
• Adapt to session dynamics; conditions shift between Asia, London, and New York.

Common Pitfalls

• Forcing trades without alignment across timeframe, structure, and catalyst.
• Ignoring spreads/slippage during news or thin liquidity.
• Moving stops or adding to losers instead of honoring the plan.

Illustrative Example

Build a simple playbook: identify bias, mark key zones/levels, define triggers and invalidation, and pre‑set targets for 2–3R. Journal results by session and setup to refine rules. Over time, consistency—not prediction—drives outcomes.

Practical Playbook

• Define context on higher timeframes, then execute on intraday charts.
• Wait for confirmation (acceptance, momentum, or confluence) before entry.
• Size positions conservatively and place stops at clear invalidation levels.
• Adapt to session dynamics; conditions shift between Asia, London, and New York.

Common Pitfalls

• Forcing trades without alignment across timeframe, structure, and catalyst.
• Ignoring spreads/slippage during news or thin liquidity.
• Moving stops or adding to losers instead of honoring the plan.

Illustrative Example

Build a simple playbook: identify bias, mark key zones/levels, define triggers and invalidation, and pre‑set targets for 2–3R. Journal results by session and setup to refine rules. Over time, consistency—not prediction—drives outcomes.