Lengths of correction

Exchange rates in the FOREX market change in zigzag fashion. Often the prices move against the existing tendency. Such movement are referred to as recoil or correction. In the technical analysis, wide applications of numbers known as Fibonacci factors, have found a certain mystical sense. At calculation of lengths of correction (sizes of recoil of the price against a trend) Fibonacci factors of 0.382 and 0.618, and also factor 0.5 are used.

In a volatile FOREX market (there can be more than 40 points change in a minute) the length of correction usually makes the speed of a change of an exchange rate 0.382 from the passed length of a rate. In "average" FOREX market (speed of change of an exchange rate within the limits of 20-40 points in a minute) the length of correction is usually equal 0.5 from the passed length of a rate. The maximal length of correction is equal 0.618. This level is the most interesting from the point of view of occurrence in the market. Why? The penetration through this level means that this is not just another correction, but the change of the trend. Thus, the trader opens a position in a direction of a trend, and simultaneously establishes stop-loss the order on 20 points behind this level of correction. Below, the schedule of rate USD/JPY for 60 min on which three lengths of correction are postponed is resulted. Apparently from the figure, the price did not manage to punch the third level of correction, and the descending trend proceeded.