Online Trading Blog

Both technical correction and technical rally are market phenomena that occur for a stock or the market as a whole. The common features of the two are

1. These are not triggered by any fundamental or economic factors but by technical reasons.
2. Are short-lived - after that the stock/market resumes the original trend.

Both technical correction and technical rally are somewhat common events that can affect the portfolio performance; especially asset price and risk management.

Technical correction is the decline in prices after strong price increase. This can occur when traders become more cautious over rising prices of stocks (over-bought levels) and want to reevaluate the value of the stock. It can also occur when the prices touch an identified resistance level. In technical correction, the buying demand of the stock reduces seriously and often the price is dropped to a short-term support level.

Technical rallies are just opposite to technical corrections. Technical rally is the increase in prices after a downtrend. This occurs when traders become more eager to buy stocks, as the prices are at low levels (over-sold levels) after an extended downtrend OR occurs when the stocks cross/reach a significant resistance level. In technical rally, the buying demand of stocks increases considerably and often stocks are found moving against the market.

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