The Fine Line Between a Correction and a Loss
One difference between a seasoned trader and a begining trader is that the old timer knows to expect corrections. In fact the old timer even knows aproximately how far a correction will take price. The beginner on the other hand doesn’t know what to expect from price. He/she is generally operating off hope. They “hope” that once they take a long position price will continue higher. If it doesn’t, and turns and backs up against them, even moving beyond were they entered the position to show them a loss, they have a tendency to cut and run.
One thing I notice, time and time again, in all the pairs on all the time frames is the market’s tendency to give us a 50% to 66% retracement before resuming the move in place prior to the correction. We will often see this happen more than once over the course of the day in the same market.
I’ve included an example of this common occurence on a eurjpy chart from this morning below. Now before you start thinking the way to take advantage of this is to play the retracement I’m going to tell you it’s not. The way to take advantage is to take the inital signal, and know to stay calm when the retracement does occur. You always want to enter on that first signal because while it may give that small retracement as much as 2 out of 3 times, 1 out of the 3 it’s going to take off and not look back. Capiche?
Jay Norris
jnorris@brewerinvestmentgroup.com
