Corrective Price Action

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What About Corrective Moves?

The good thing about corrective moves is they are easy to spot, since they have the inverse characteristics of impulsive moves. Meaning, they tend to have;

• Smaller Candles
• Greater mix between red/blue or bull/bear candles
• Closes more towards the middle with larger wicks

How impulsive action relate to corrective action?

Generally, impulsive and corrective moves tend to have a common pattern or dance with each other. The general pattern that tends to play out between them is the following;

• Impulsive moves about 75% of the time are followed by corrective moves. These corrective moves can either be horizontal, slightly against the impulsive move, or even slightly in the same direction, but they denote a change in the order flow and participation.

• 75% of the time, these corrective moves are followed by impulsive moves in the same direction as the original impulsive move. Because those who are in control, rarely give up control unless encountering a strong counter-trend force. Even then, they usually make a second attempt to take out a recent swing high or low before giving up.

Only when they fail a second time will they usually exit the market, either waiting for a new chance to get in on a pullback, or reset completely. This is why V-Bottoms are quite rare and only form about 10% of the time. Usually there is a 2nd bottom, which is could be a LL (lower low), HL (higher low) or a similar low.

This series between the impulsive vs. corrective moves will generally continue until the market encounters a counter-trend impulsive move, which usually translates to an equal or greater force on the opposing side of the market. Very similar to Newton’s Laws of Motion about an object in motion will stay in motion until acted upon another object with equal or greater force.

Glancing at the chart above starting with the bottom left at move A, you can see how it was an impulsive move, followed by a corrective move (B). This series continued until…it hit a counter-trend impulsive move in G. It was only until here did the bulls finally relent control as the opposing bears took control of the price action with the bulls likely taking profit or exiting all together, especially after the low point from move D was taken out. Ironically, what followed move G, was a corrective move after, followed by the bears continuing the down-leg.