A technical correction is a change in the direction of the price of an asset after a constant movement (bullish or bearish). According to the definition of Technical Correction, this phenomenon occurs only when there is no evidence to support the change of direction in prices. These corrections often appear when investors temporarily reduce their buying trades in a bullish trend movement or their selling trades in a bearish trend movement.
Technical Correction Explained
A Technical Correction is a correction in a financial market that has no justification. For example, after a constant increase in the prices of an asset, investors can become cautious and revalue the market, which causes a decrease in purchases. The fall in the trading volume means that prices stop rising while the market trend is revalued in the short term.
All bullish and bearish trends in the market experience technical corrections, especially after particularly strong movements. Corrections are important because they can help us to enter the trends at the best prices. In fact, experienced traders wait for these corrections to carry out their transactions in favor of the trend. In addition, when the corrections are very strong, traders can suffer heavy losses, especially fi they use too much leverage or risk too much, although the transaction is in favor of the general trend.
The following price chart shows an example of a technical correction in a bullish trend:
