Market Reaction vs. Market Continuation
Most traders lose because they can’t tell the difference between a reaction move and a real continuation. They treat every bounce as a reversal and every pullback as a trend entry. If you can separate reactions from continuation, you kill half your bad trades instantly.
What Is a Market Reaction?
A reaction is a temporary counter-move that doesn’t change the bigger picture.
Reactions come from:
- Profit-taking
- Liquidity grabs
- Rebalancing
- Short-term algos
The key: a reaction move doesn’t break structure. This connects directly to structure breaks.
What Is Market Continuation?
Continuation is a move that supports the existing trend and builds new structure in that direction.
| Reaction | Continuation |
|---|---|
| Short-term | Trend-supporting |
| No structure change | Breaks or confirms structure |
| Low conviction | High conviction |
| Wicks and hesitation | Clean pushes |
How to Identify a Reaction Move
A reaction has these traits:
1. Shallow Follow-Through
It tries to move but immediately stalls.
2. Opposing Volume Spike
The push is driven by shorts covering or early buyers taking profit.
3. No Structural Damage
Trend structure stays intact. You can confirm this with swing high/low logic.
4. Occurs at Liquidity Points
Reactions often happen when the market clears stops.
How to Identify Continuation
1. Structure Expands
The trend forms new higher highs or lower lows.
2. Pullbacks Get Shallower
The market is compressing for the next leg.
3. Volume Aligns With Trend
Momentum and participation support the direction.
4. Failed Opposing Attempts
If the market tries to reverse and fails, continuation is likely next.
Common Mistakes Traders Make
1. Buying the First Bounce in a Downtrend
That’s almost always a reaction, not a reversal.
2. Shorting the First Pullback in an Uptrend
You’re fighting continuation pressure.
3. Assuming Speed Means Strength
Fast moves with low volume are usually reactionary.
How to Trade Reactions vs. Continuation
Trading Reactions
- Use tight stops
- Expect failure if momentum is strong
- Use them as entries into the main trend, not against it
Trading Continuation
- Enter on pullbacks that respect structure
- Ride the momentum until exhaustion
- Look for volume alignment
The Bottom Line
If you learn to tell reaction from continuation, you stop taking trades that die instantly and start trading with the side that actually has control. That’s how real consistency starts.