Reversals versus Corrections

Is it a reversal or a correction?

It’s a issue that many currency traders struggle with…

I think it doesn’t have to be that way when you utilize market cycles and the 34ema Wave. Market cycles or “market trends” are a concept straight from Charles Dow and part of what is not referred to as Dow Theory.

There really is not point in looking at reversals or corrections when the market moves sideways. In these situations it is better to view the momentum as prices break support or resistance.

When the market is trending higher or lower, the issue is front and center. It’s during these cycles that I am looking to gauge the strength of the trend and identify the correction levels. Corrections mean the the trend is “correcting” so that presumes that the trader understand at what point the trend reverses. For me that’s done with the Wave itself.

In an uptrend the 34ema low is the line in the sand that separates a correction and a reversal; conversely in a downtrend it’s the 34ema high. Again, this all depends upon the market cycle and it must be in either a 12 to 2 o’clock Wave angle for an uptrend and a 4 to 6 o’clock Wave angle for a downtrend.

Here’s a couple examples and to keep this current let’s look at the U.S. Dollar and gold on the end of day time frame.

First up is the U.S. Dollar. There was a lot of talk about whether the lower prices on the U.S. Dollar would be temporary pullback or a reversal. For me, it was obvious, but here, look for yourself.

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The angle of the Wave is not the strongest but certainly it would qualify as a 12 to 2 within the lookback on the chart – which should be one year for a daily chart. That means the market is still in an uptrend and any move lower is a “correction” or “pullback” as long as 1) the Wave holds the mark up cycle angle and 2) trades above the 34ema low.

Here’s gold, a chart many of us having been watching and trading.

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Gold is no longer a market in a “correction” as prices have not only transitioned into a sideways market cycle but the pullback traded below the 34ema low as the transition began. What am I doing now? I’m waiting on a breakout!

Hope this has been helpful and gives you an idea of how you can use market cycles and the Wave!

– the Queen