Strong trends tend to be fast. They also tend to have large ranges. Although in the case of our example the price has trended from the breakout point of 76.20 to 77.80 or 160 pips, still that is rather small for a strong trend move. Moreover, until the sellers can prove they can wrestle control back, the bullish trend remains intact. In our example, there is no real reason to exit. The corrections have held the Correction Zone.
“Broad view” (below) is an extended look at the period from Feb. 8 to Feb. 29, 2012. Along the way, there were five trend moves to the upside and five corrections of those trends. In each of the up moves, we measured the corrections of the smaller trend segments. This was to see if the capitalized traders still support the market and if the sellers can take back some control. This allows us to put the correction of the most recent leg higher in perspective.
On four of the corrections, the Corrective Zone held support (see small yellow circles). On the fifth trend move higher, the Corrective Zone did not hold (smaller red shaded area) and the correction lower was the most pronounced since the trend started.
The move below the Correction Zone of the last leg higher was a clue that the market was more balanced. Sellers finally were able to exert some control over the buyers. The buyers also had the incentive to book profit. They likely contributed to the selling. The Fibonacci retracements gave traders the clue for exiting.
Trends consist of big steps followed by smaller corrections. If the smaller corrections are able to stay within a Correction Zone as defined by the 38.2% and 50% Fibonacci retracement levels, traders can look to take another step in the trend’s direction. If the Correction Zone gives way, traders can use the clue to exit positions. Step through the trends by measuring Fibonacci retracements. You will stay on the side of the trend and ultimately make more money in the markets.