Secondary Reactions.

The priamry trend is up. There is no confusion about it. Traders have two methods of riding this trend: (a) Buy when this trend was detected and wait till the end of the bull market becomes visible. (b) Buy when a secondary correction is complete,  ride the up move, then exit when the next secondary correction is starting. This is the way of the trader.

While it is easy to identify the primary, the secondary corrections are much more difficult to detect. What may appear to be the start of the correction could turn out to be a minor dip. If the trader decides to ignore these corrections and simply ride the bull market, he may find that a correction which was ignored was actually the beginning of a bear market!

Secondary reactions or corrections are the difficult part of trading. Richard Russel writes “Coming with little warning, they serve to correct the primary swings, as well as to dampen the enthusiasm of the amateur trader. They are caused by over-speculation and technical weakness in the price structure. ”

Russell gives out “The danger signals of a coming secondary reaction”.

1. Volume becomes excessive with little or no movement in the Index
2. One sector declines pesistently while another sector advances.
3. Following a decline, one or more sector Indices fail to make new highs.
4. One Sector makes a new high, while other sectors refuse to confirm.
5. The Index remains in a line (about a 5% range) for two weeks or more, then break it on the downside.

My Notes: The Market has not shown any of these patterns, so far. But, it is wise to keep such patterns in mind.