Vantage FX (www.vantagefx.co.uk) look at how to spot a trend's correction.<br /><br />Trend-spotting Week<br /><br />We are looking at an AUD/USD chart over several time frames. The key to understanding technical analysis is to figure out whether you're trending or backing and filling.<br /><br />On the 10-minute chart we can see a rally between 92.90 and 94.25 overnight last night. The 50-period and 200-period Moving Averages had already suggested that you stay long. The AUD/USD keeps pushing higher until prices start to cross this afternoon at 13:50.<br /><br />Are we correcting?<br /><br />Quite possibly - the rally peaks then goes down before the prices cross.<br /><br />Now looking at a 4-hourly chart, we can see that we've been drifting lower over the past 8 days. However the real trend started on 1 September when we were down at 89 cents per USD, followed by a steady push higher. We can see that the past 8 days have been a correction and we've only given back part of the previous rally.<br /><br />Now on the daily chart we see a big drop since April hence the rally over the last month is corrective. When labelling a trend or counter-trend the time frames are very important.
