Learn Trend Analysis | Impulse & Retracement Legs 📈
Updated: Aug 22
As you asked me, in this educational post we will discuss some price action basics.
No matter whether you are a fundamental trader or a technical trader you should be able to execute trend analysis.
You should always know where the market is going, if it is bullish or bearish.
One of the simplest ways to execute trend analysis is to perceive a price chart as a sequence of impulses and retracements.
➖The impulse leg is a trend-following move.
It is characterized by heightened movement dynamics and speed.
Usually the completion point of the impulse:
sets a new lower low in a bearish trend,
sets a new higher high in a bullish trend.
➖A retracement leg is a correctional movement within the trend.
Its’ initial point is the completion point of the impulse or retracement leg and
its completion point might be an intitial point of a new retracement leg or of a new impulse leg.
In the picture above, USDJPY is trading in a bullish trend. Bullish moves are called the impulses and bearish moves are called the retracements because bearish movements complete within the ranges of the bullish impulses.
In the example above, AUDCHF is trading in a bearish trend. Bearish moves are called the impulses and bullish ones are called the retracements.
Usually, a retracement leg is characterized by a slow zig-zag movement.
Usually the completion point of the impulse leg:
sets a lower high in a bearish trend,
sets a higher low in a bullish trend.
Perceiving the price chart as the set of impulses, one can easily and objectively identify a global, mid-term and short-term market trend, price action trend-following, reversal and correctional patterns.