Every move against the trend raises the same question: is this a pause, or the start of a new direction?
Getting it right decides whether you are buying an opportunity or holding a losing position. This lesson gives you a simple way to tell the difference.
A correction is a temporary move against the main trend. In an uptrend, traders often use corrections to buy at a better price, known as buying the dip.
How deep a pullback goes tells you how strong the trend is. When buyers step in quickly, dips stay shallow.
When each pullback is deeper than the last, buyers are losing conviction, even if the trend hasn't broken yet.
A dead cat bounce is a short, sharp rally inside a falling market. It looks like recovery and draws in hopeful buyers, then the fall resumes and pushes to a new low.
The name is blunt: even a dead cat bounces if it falls far enough.
Buying every dip works well, until the trend breaks. Then the dip keeps going, and a trader who keeps adding turns a small loss into a large one.
The simplest test is the last higher low. In an uptrend, a correction stays above it; a reversal breaks below it. That level also makes a logical place for a stop-loss.
Trade with the trend, not against it.
