Price Flow: How to Effectively Read Impulsive and Corrective Market Movements?

Impulsive Movements

An impulsive movement represents a phase in which the price of a selected underlying asset moves quickly in one direction, that is, impulsively. Such movement is typically accompanied by higher trading volume and long candles on the chart. This is a specific period, for example after positive quarterly earnings of a company, when stock prices tend to rise sharply, or when, in the case of currency pairs, a certain fundamental news event causes a rapid weakening of a currency. In general, it can be said that for traders, impulsive movements are the primary signal that a trend is forming or continuing.

Corrective Movements

On the other hand, corrective movements represent a market state in which the price, after an impulse, pauses and begins to move back—either sideways or against the original trend. This can be compared to an athlete who needs rest after a sprint. Corrections are therefore a natural part of every trend, as the market can never move in a straight line. For traders, it is important to realize that corrections often open up opportunities for entry. If an impulsive movement has demonstrated the strength of the trend, entering during a correction means buying cheaper or selling at a higher price while continuing in the direction of the trend.

How Does the Strategy Work in Practice?

To achieve a higher probability of long-term success with this strategy, this approach can be combined with complementary tools such as Fibonacci levels together with candlestick formations (both tools are described in detail in our zone).