In this article I aim to save you a lot of time and increase your chances of profitability. When you wake up in the morning or you open your charts how do you know when to trade besides conducting some technical analysis?
How to quickly identify the market condition, when to trade and when to close your chart and walk away.
There are three main types of market conditions I'd like to share on this blog and how to use them. When I open my charts the first thing I look for is market behavioural. I want to see what the market is doing to get a my first confluence. At this point I'm not plotting my structural levels, indicators or whatever charting tools you use and I do not have a bias forecast on price, I'm just looking at a naked chart. The three conditions I look for are trends, ranges and Choppy price.
look at the picture below(fig.1)
Trending market :A trending market is a market that is either trending up or down. A Up trending market is one that may fluctuate up and down but on average tends to close periodically higher. A Down trending market will make a impulsive move down and retrace up and tends to close lower.
Ranging market: When you witness a ranging market you will see price of a financial instrument making the same highs and lows a number of times. The most common definition of a ranging market is when price hits the same support and resistance levels three times.
Choppy market: Simple, price is in a indecisive condition. There's no direction of trend or ranges and zero chances of execution.
USING MARKET CONDITIONS IN OUR ANALYIS
When I have identified the condition of the market I will now use chosen technical analysis tools, scale down to lower time frames for entries and follow my trading plan. This is an effective way of trading for beginners because you are giving yourself confluence. I urge you to keep it simple
Trading with the trend gives you a higher chance of profitability. Wait for the retracement and follow the trend. It is also important to determine the maturity of the current trend as price will gradually reverse.
As you can see above(fig.4) The market is trending upwards. Price is making a series of Higher Highs and Higher Lows whilst breaching major structural levels. If it was a downtrend the concepts are still the same price will make Lower Highs and Lower Lows.
Some traders prefer trading inside the range or the breakout. There are many risks you should consider when trading ranges. Manipulation can occur, breakouts can happen anytime. You can combine your technical, fundamental tools to assist you in your decision.
Above (fig.5) shows a ranging market. Ranges often occur after trending markets. Price will exhaust on bigger time frames a range is considered indecision. You can I was able to capitalise on this range I waited for price to test the support and resistance of the range. With my systematic trading plan and analysis I was able to get entries with a good risk to reward ratio.
So choppy market, you know what forget about that. Don’t try to analyse simply step back from your chart or move to on the next pair NEVER EVER TRADE A CHOPPY MARKET! Don’t get chopped up. Its indecisive don't chase trades please wait for the market to tell you what to do.
In this article you have you have identified market conditions you should look for before trading and how to apply them to your everyday trading. Go back to your charts and see what you have Identified. You will see that these three market phases on any given time frame, any pair/financial instrument
Learn, apply and build based on what you have read above and you will start to see results.
leave a comment if you agree