Market Correction

Navigating the intricate landscape of financial markets demands not only a keen understanding of trends but also the ability to decipher the subtle indicators that precede significant shifts. Enter the realm of market corrections – those pivotal moments when prices adjust from their prevailing trends, offering both risks and opportunities to traders. In this article, we delve into the art of early market correction identification – a skill coveted by investors and traders alike.

Investing in the stock market can be a lucrative way to build wealth over time, but it's not without its risks. One of the biggest challenges investors face is how to preserve their capital when stocks are falling. When the market takes a downturn, it can be tempting to panic and sell off investments to avoid further losses. However, this approach can often lead to even greater losses and prevent investors from taking advantage of future market rebounds.

Why are economies cyclical – growth is inevitably followed by decline? The fact is that all processes in the physical world are cyclical. The nature of any economy is based on supply and demand. And both buyers and sellers can be on the strong side. Suppose there is an economy in a phase of active growth, with low inflation, growing GDP, and other positive fundamentals. In such an environment, high and steadily rising prosperity would stimulate demand for goods and services and positively affect all production and increase the stock price of manufacturing companies.

A proper understanding of position trading will allow you to add a powerful strategy to your arsenal for working in any financial market. Before you start trading, you should understand the basic key concepts: what position trading is, how it differs from swing trading, and what its strategy is.

Key events:       USA – GDP (QoQ) (Q3)   USA – Initial Jobless Claims Markets are unlikely to be affected by the release of any data over the Christmas period, but a bumpy exit from quarantine in China and developments in the energy market could cause global risk sentiment to deteriorate. Analysts remain bullish on the dollar in early 2023. The Czech National Bank will close the region's central bank meetings this year.

Economic development is cyclical – a boom is always followed by a downturn. Such a downturn is called a recession, a phenomenon that recurs with varying frequency and depth. Sometimes recessions occur with little or no serious economic disturbance, but other times they can lead to crises of varying magnitude. So what is a recession, what are its characteristics, and is the world economy in a recession now?  

Usually, the word "rally" is associated with racing. But it has another meaning besides the competition. In stock trading, the notion of a rally is used to refer to a period during which there is a rush of assets on the market. As a rule, it is expressed in the sharp increase of almost all quotes and the increase in total sales volume. Simply speaking, a market rally is a short period, when investors are trying to manage to buy more stocks with the maximum profit for themselves.

Key events: UK – Manufacturing PMI (Oct)   USA – ISM Manufacturing PMI (Oct)   USA – JOLTs Job Openings (Sep)   New Zealand – Employment Change (QoQ) (Q3) Despite the complete absence of any fundamental reasons for the rapid growth, the markets are behaving very positively. The level of negativity in the market sentiment, lately, is so great that it takes just a little bit to accelerate upwards - everyone is hungry for growth. All key indices demonstrated an uptrend of 4% to 8% last week.

Key events: Eurozone - CPI (YoY) (Oct)   The economy does not stand still, and the figures of more than three weeks ago do not reflect the current situation. Time, it should be said, has generally flattened lately, and what was going on a few weeks ago may well be considered "old times." For instance, the U.S. Consumer Confidence Index fell from 107.8 to 102.5 in October, and the manufacturing shipments index from the Richmond Fed fell to -10, instead of the -5 the market was forecasting.

Any price movement can move in one direction only for a limited period of time. After that the quote changes its trend, goes to a sideways trend or starts an opposite trend. It is quite difficult to predict such changes, that is why modern traders invent more and more methods of market analysis. By understanding when a correction begins, traders can determine the probability of the next reversal and place appropriate orders.