Monday, July 2, 2012

Should I trade a correction?

Corrections are moves against the main trend. Since trend following makes money, it follows that trading in the direction of the main trend should make money. When the trader gets a sense that a correction is starting, then trading should be stopped since trades in the direction of the main trend may no longer be profitable.

It is wise to step aside and let the correction take its own course. There is no sense in trading with the main trend when prices are moving against it.

But, should we trade in the direction of the correction? The answer is: do not trade the correction, initially. If a pattern of trend continuation develops (lower highs, lower lows), then it is possible to trade the correction because the main trend itself becomes uncertain.

To relate these ideas with the current scenario: we may well start a correction soon enough. Traders should avoid short selling until a pattern develops that indicates lower levels are coming.


RS said...

Agreed to Sir, however may we know which all main patterns would you consider as reversal patterns for technical trading ?

Jitender Yadav said...

Respected Sir,

Today on 'Guru Purnima' I want to thank you for being a such a wonderful teacher for me and thousands of other followers. Everyday your teaching through this blog and TV helps traders make better and profitable trades.
May God bless our Sudarshan Guru Ji with all the happiness of the world.

Your fan & student
Jitender Yadav

Technotrader said...

Sir, Good Wishes on the occassion of Gurupornima and I will always need your guidance as your Shishya. Thanks as always for your kind advice.

IndieTech said...

Dear Sir,

Have been following your thoughts both on TV and on blog for few months now. Your uncanny ability to suss-out market directions is head-and-shoulders above the rest of experts. I have benefited immensely in developing a clear-headed perspective and robust risk-management principles; would hasten to add that there surely is great deal of learning to do and hence would continue to follow your blog :). Many thanks for sharing your rich insights and ideas.

On the matter of trading corrections, I have encountered various resources that point towards Elliott wave principles. While my trading style is more inclined towards following basic price actions and some elementary indicators, I was wondering whether learning Elliott wave principles would provide an edge?

Also, if you could refer some money management (sizing and timing trades) related reading material, that would be greatly appreciated.

Thanks and regards.

PS: My email id : Just in case you feel blog entry is not warranted.

Rakesh Shethia said...

In an uptrend, we are advised to buy on dips. How deep should a dip be to still qualify as a buy and not as the correction.

umesh said...

How to save from volatality or chopiness(wipsaw movement) in the market? how to recocgnise it early?
For nifty futures is 50-60 point ( considering money mgt)stoploss is not enough?
should retail,small trader should trade in futures & stock options?
Trading futures does it require to glue it to TV screen? Can office working person trade in futures?

Sir please advise.