What is a Market Correction?
Correction
Forex Trading Glossary
Quick Answer: A correction is a counter-trend move that retraces part of the prior advance or decline, often creating better entry prices.
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.
Plan Ahead
Use Fibonacci retracements, prior swing levels, and momentum indicators to identify where the correction may end.
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.
Related Terms
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