Technical Analysis Plain and Simple: Charting the Markets in Your Language, Second Edition

The Right Way

Without going into precise measuring techniques and strict interpretations, a correction simply takes place after prices have moved. Figure 12.1 shows how a normal correction fits into the ebb and flow of the CSCE coffee market in 1997. In March, the market set an intermediate term peak and broke a rising trendline to the downside. This turned into a declining flag pattern typical in most markets. The bottom of the flag occurred at approximately the 50% pullback level of the December 1996–March 1997 rally. This is a common correction amount. Both the subjectivity of the flag and imprecision of the 50% pullback low are entirely normal in their deviations from textbook patterns. After the top of the flag was broken to the upside, ...