IMPULSE AND CORRECTIVE MOVEMENT
What is an impulsive price movement?
This is a situation when the market moves with great force in one or another direction, passing large distances in a short period of time.
What is a corrective price movement?
It is a price stop. After an impulsive movement, the price needs a rest. Unlike an impulsive movement, a corrective movement lasts long enough and is often just in consolidation (sideways movement). There are exceptions, when the price after a strong movement is not in a sideways, but rather in a microtrend against the main movement with a weak price impulse and goes a short distance up\down (depends on the trend direction).
On the chart you can see the descending price channel, I have marked the important places. Next, I will describe everything in order. First, I will tell you how to determine a true or false breakout of a level in the trend and how to work from these levels using impulses (these levels are called mirror levels (swing) that change their level from resistance to support).
A: there was a break of the support level with good momentum, up to this point there was a bullish movement and sideways movement. The break of level A broke the rising highs and we can already say that there was a trend reversal. Where we will proceed from the mirror levels of the trend.
A mirror level is a level that from support became resistance and vice versa.
After breaking the level, a corrective movement to the same broken level began. Do you remember what I was talking about in the beginning? About the fact that the price does not always go sideways after the breakout, it can also go against the general movement, but with less impulse. But in this case as you can see price went sideways after it broke through the level, then slowed down and started to roll back to the broken level, this is exactly the place where we can look for an entry into the trade.
B: As I said, there was an impulsive break of the level and then a corrective movement against the main downward movement, after which the price approached the broken support level and broke it again. Most likely, the breakout was due to some news, most often the price makes a reversal without such sharp movements.
This is the place where all candlesticks are filtered and decisions are made. Pay special attention to what candles are formed at such levels. Ideally, it should be like this: candles decrease in size and form dojis (i.e. candles of uncertainty). You can expect a pinbar or maribose in such places.
Now remember the 2 types of corrective movements:
- price moves against the main direction, but with less momentum
- price is in consolidation after the breakout
In this example the price is just in a sideways movement and does not make impulsive movements, it is simply resting after breaking another support level in place. In this case we also have 2 moments to enter.
1. When approaching the broken support level, which is now a resistance level.
We have all the right conditions for entry: the price has no momentum, respectively, it will most likely bounce off the resistance level and continue moving downwards; uncertainty candlesticks have appeared (in this case they were dojis); and the last criterion is the appeared Outside bar setup (B point).
2. In the second case, the entry is made on the breakout of the support C
Unlike the place where the price goes against the movement, in our case (sideways) the price after the breakout can go further without correction to the broken level, but there are also criteria for this: the candle that breaks through the C level should be without big spikes; the price must breakout with good momentum (notice how the price stopped out at the support level, so we should expect a true breakout with good momentum, as was the case in this example)
Next example when the price rolled back immediately after breaking out of a level without sideways move at the D point. Pay attention to how the price gives signals that it has no strength to move further. These are small candles that were then engulfed by one big red candle and the price made an impulsive movement downward.
Impulse and corrective moves: conclusions
Impulse movement
• Candlesticks have large bodies.
• Price moves a long distance in a short period of time.
• Each subsequent candle closes higher/below the previous one (a clear sign of a good impulse).
• Candlesticks have the same color and sentiment (In a bullish trend is green/blue candlesticks. In a bearish trend is red/black. Well, or any other colors that you use).
A corrective movement
• Candlesticks have small bodies.
• Candles of uncertainty are formed (dojis, haramis).
• Price moves small distances over a long period of time.
• Candlesticks have a combined color (different colors).
When the price approaches the support and resistance levels or trend line borders, you should pay attention to these factors and, if they are met, you can enter the trade.
This is a situation when the market moves with great force in one or another direction, passing large distances in a short period of time.
What is a corrective price movement?
It is a price stop. After an impulsive movement, the price needs a rest. Unlike an impulsive movement, a corrective movement lasts long enough and is often just in consolidation (sideways movement). There are exceptions, when the price after a strong movement is not in a sideways, but rather in a microtrend against the main movement with a weak price impulse and goes a short distance up\down (depends on the trend direction).
On the chart you can see the descending price channel, I have marked the important places. Next, I will describe everything in order. First, I will tell you how to determine a true or false breakout of a level in the trend and how to work from these levels using impulses (these levels are called mirror levels (swing) that change their level from resistance to support).
A: there was a break of the support level with good momentum, up to this point there was a bullish movement and sideways movement. The break of level A broke the rising highs and we can already say that there was a trend reversal. Where we will proceed from the mirror levels of the trend.
A mirror level is a level that from support became resistance and vice versa.
After breaking the level, a corrective movement to the same broken level began. Do you remember what I was talking about in the beginning? About the fact that the price does not always go sideways after the breakout, it can also go against the general movement, but with less impulse. But in this case as you can see price went sideways after it broke through the level, then slowed down and started to roll back to the broken level, this is exactly the place where we can look for an entry into the trade.
B: As I said, there was an impulsive break of the level and then a corrective movement against the main downward movement, after which the price approached the broken support level and broke it again. Most likely, the breakout was due to some news, most often the price makes a reversal without such sharp movements.
This is the place where all candlesticks are filtered and decisions are made. Pay special attention to what candles are formed at such levels. Ideally, it should be like this: candles decrease in size and form dojis (i.e. candles of uncertainty). You can expect a pinbar or maribose in such places.
Now remember the 2 types of corrective movements:
- price moves against the main direction, but with less momentum
- price is in consolidation after the breakout
In this example the price is just in a sideways movement and does not make impulsive movements, it is simply resting after breaking another support level in place. In this case we also have 2 moments to enter.
1. When approaching the broken support level, which is now a resistance level.
We have all the right conditions for entry: the price has no momentum, respectively, it will most likely bounce off the resistance level and continue moving downwards; uncertainty candlesticks have appeared (in this case they were dojis); and the last criterion is the appeared Outside bar setup (B point).
2. In the second case, the entry is made on the breakout of the support C
Unlike the place where the price goes against the movement, in our case (sideways) the price after the breakout can go further without correction to the broken level, but there are also criteria for this: the candle that breaks through the C level should be without big spikes; the price must breakout with good momentum (notice how the price stopped out at the support level, so we should expect a true breakout with good momentum, as was the case in this example)
Next example when the price rolled back immediately after breaking out of a level without sideways move at the D point. Pay attention to how the price gives signals that it has no strength to move further. These are small candles that were then engulfed by one big red candle and the price made an impulsive movement downward.
Impulse and corrective moves: conclusions
Impulse movement
• Candlesticks have large bodies.
• Price moves a long distance in a short period of time.
• Each subsequent candle closes higher/below the previous one (a clear sign of a good impulse).
• Candlesticks have the same color and sentiment (In a bullish trend is green/blue candlesticks. In a bearish trend is red/black. Well, or any other colors that you use).
A corrective movement
• Candlesticks have small bodies.
• Candles of uncertainty are formed (dojis, haramis).
• Price moves small distances over a long period of time.
• Candlesticks have a combined color (different colors).
When the price approaches the support and resistance levels or trend line borders, you should pay attention to these factors and, if they are met, you can enter the trade.
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