What is the difference between an Impulse and a Correction?
IMPULSES versus CORRECTIONS
Before going deeper into understanding how impulses and corrections help us define a trend, let me remind you of this. Supply and demand imbalances are made of impulses but not all impulses are imbalances.
Each timeframe has its own trend, this is why it’s mandatory that we make a multiple timeframe top down analysis in order to decide in which trend direction we want to trade. The bigger the timeframe, the higher its reliability
A trend is composed of impulses and corrections:
Impulses
The impulses are the moves in the direction of the current trend, (i.e) the direction in which we should be trading.
Corrections
Corrections can be seen as the pauses in the trend, or small retracements reverting to the mean before the current trend is resumed.
Corrections together with supply and demand imbalances give us the opportunity to trade in the direction of the main trend before the new impulse happens
Anatomy of an Impulse:
· Impulses are Fast moving prices. Violent moves that cover large price moves in a short period of time.
· This prints ERC candles in the chart. They tend to have larger candles, even gaps in the direction of the trend
· If seen in the opposite direction of the main trend, it may be giving us information of a potential change in the dynamics of the current trend
· Impulses in the opposite direction to the main trend usually happen when a bigger timeframe opposing imbalance gains control
Anatomy of a correction:
· Price moves slower and covers less price action.
· Price takes much more time to cover the same price action covered by an impulse
· This is Riskier to trade, you will probably be on the wrong side of the new potential impulse
· Corrections can be easily measured by supply and demand imbalances on the timeframe where they have been located.
This one big candle changes the entire dynamics of this chart. Price was in an uptrend and suddenly forms a big red ERD candle. This Impulses in the opposite direction to the main trend usually happen when a bigger and opposing zone is reached in the HTF.
This price drop in a violent way changes the market dynamics. Now impulses are in the opposite direction
Likewise, Price usually corrects by retracing to previous areas of demand and confluences.
Corrections can be easily measured by supply and demand imbalances on the timetrame where they have been located.
In Corrections price moves slower and covers less price action and may move sideways or opposite to the main trend
We can also use the EMA and trendine rules in order to learn where the correction will end and where the next impulse is most likely to happen.
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