Forex Market Conditions, a graphic depiction - page 3

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how do you distinguish range/trend market?

Hello community.

i have a question about distinguishing current market mode.

let's say i got entry signal from trend/detrend indicators together.

and i've set position as signals indicated.

now i'm getting benefit.

after a while i got opposite entry signal from detrend indicator.

if the market is in range mode. it'll be decent exit signal for my position

but if the market is in trend mode. it'll be whipsaw.

my question is. how do you confirm signals from detrend indicator? (such as cci)

 

Hi r4bb1t,

You can't. If you find the solution to that problem you found yourself the holy grail on trrading systems. Millions of traders before you have asked that question and waisted years of searching on it.

Some will maybe answer that they use this or this indicator (like adx or damianvolta) to help them in showing the difference between ranging markets and trending markets but all those indicators lag in such a way that you will run after the facts.

They will show you that you are in a ranging market after it is already ranging for quite some time where you will then have the losses on your trend following system.

They will show that you are in a trend after it is already trending for some time where you will loos on your ranging system and miss out on the first signals on that you should have taken according the trend.

The best you can do is go for one certain trading system. Ranging or trend following.

Each choise you make will have pro's and con's.

Impossible to have the best of both worlds.

Friendly regards....iGoR

 

Thanks for your clear answer iGoR.

i use ADX and yeah it's definitely helpful when it's trendy.

although it's laggy as you mentioned.

does anyone have tried by applying John Ehler's measuring cycle period methods?

like assuming when cycle period is low market is in range mode?

 
 

Moneyline has so appropriately distinguished the different categories of market patterns in his/her posting some years back.

Systems specially designed for range trading will go haywire when the market goes into a trend (up or down is immaterial).

Normally, when the market turns choppy or goes into a range, it is in the process of consolidation and choppy when the bulls and bears fight it out; but at some point in time, one side will prevail. According to Elliott Wave approach, they are in the CORRECTION phase.

Correction phase is shorter in duration than trends, as it is only a retracement reaction to the main trend (be the trend is up or down).

Follow the trend is a well given advice given by seasoned traders. Playing corrections are more for experienced traders (not for most of us), as there are many complex correction patterns.

 

Careful Consolidation Trading

Consolidation is perhaps one of the most confusing and challenging trading environments.

Most new and novice traders still have not figured out that there is a time to trade and a time to stay out of the markets. Trading is not a sprint to quick profits, it is a marathon to build financial wealth.

It is important that you always keep in mind one of the most important rules of trading which is to preserve capital.

If your trading system begins to break down and you experience failed trades occurring with more frequency, but you are staying true to your trading method and rules, this could be a very strong signal that you should stop trading. What should you do when you stop trading?

When I experience changes in the market due to uncertainty and lack of direction, I still show up to my office trading the same number of hours five days a week during the London and New York session however I watch the market without placing a live trade. I watch to see how traders react to economic data and the comments that are made by distinguished market analysts.

This will typically occurred during consolidation.

Consolidation often means different things to each trader. Consolidation can occur on a small time frame yet still show a trend in place on the larger time frames such as the four hour or daily charts. However when there is consolidation that appears even on the four hour or daily charts, its time to be careful. Very careful.

A lack of volume and a lack of commitment from traders can cause price to retrace or reverse quickly, often times before the typical profit targets are achieved in most trading systems.

When markets move sideways inside of consolidation is a good idea to stay out and wait until a clear sense of direction begins to unfold or take shorter profits and prepare to close a trade quickly if necessary.

Realize that by trading in this type of environment you are actually changing your trading strategy and your original plan. This could be argued that it will be difficult to maintain discipline to your trading strategy and you could ultimately affect your performance by unnecessarily changing profit targets and stop loss levels.

So the question is, should you trade when there is a great deal of uncertainty in the markets and consolidation?

Regardless of whether or not you place a trade, it takes the same amount of analysis to determine that you should stay out of a trade that might be against your trading strategy, as it does to find a trade that honors every rule. Your challenge is, do you have a trading plan that includes how you will control your behavior when the markets begin to move in a manner that you are not familiar with?

If you are new or inexperienced with certain types of market environments it may be a good idea to start off with a simple rule that states when you lose more than two or three trades in one day but you follow every rule and price is moving in a sideways unpredictable manner, stay out until you have analyzed where the mistakes are being made and there is a sense of direction and you can gauge market sentiment.

What we are currently experiencing in late June and early July 2009 is somewhat similar to what we all experienced last year in October and November. In the beginning, it takes more time for the majority to accept the reality of change in the markets. Over the past few months there was some excitement as to whether or not we were experiencing a bottom formation in all markets including real estate markets. However in the last three or four weeks, the realization of a drawn out and lengthy recovery is most likely. This realization along with the anticipation of economic data to confirm this type of sentiment could cause markets to move sideways and inside of consolidation before a major move. What is expected by some analysts is a possible retest of lows and almost all markets.

So the question is repeated, should we be trading in uncertain trading environments that could cause us to give back previously earned profits?

Remember, trading is not gambling. It is to be treated like any other business and preservation of capital is one of the most important rules of any trading plan or system.

I present two charts below one of the EUR/USD and GBP/USD1 hour chart.

EUR/USD shows a small break out of consolidation however it immediately ran into the next level of resistance it retraced right back into consolidation.

GBP/USD however shows price remaining inside of consolidation. It may be a good idea to stay out of trading but keep an eye on the charts and watch for the breakout. When it occurs try to determine market sentiment and analyze any economic data that may be available before or during the breakout. Additionally the anticipation of any previous news could also cause a small trending move outside of consolidation so it is just as important to keep an eye on future economic data and what the markets may be anticipating.

my favorite strategy is first to identify consolidation. Because I am a day trader I prefer to be flat at the end of each day. So I know my trades will develop and pay quickly. The consolidation range I prefer is on the one hour chart and usually the overnight consolidation..

Once I see a breakout of this range, I do not participate in the initial breakout move as that often times can lead to head fakes or requires a larger stop loss. I simply let the rally outside of the consolidation range occur and wait for the pullback to either support or resistance which Is actually the high or the low of the consolidation range. Once this takes place I look for specific candle patterns on the 30 minute chart and use approximately a 20 to 25 pip stop loss.

The candle patterns I prefer to trade are evening star, MorningStar or engulfing candles.

You will notice on the euro/USD chart that after the breakout of consolidation occurred, a morning star pattern never developed and price reversed back down inside of consolidation towards the lows.

Ultimately, your ability to remain sensitive to market changes is what will allow you to make the necessary changes quick enough to prevent giving back future profits. This sensitivity can be practiced even without live trading.

Thanks for reading,

LC

 

Forum on trading, automated trading systems and testing trading strategies

Gold is Reaching at 1270

Sergey Golubev, 2013.07.01 21:04

How can we know: correction, or bullish etc (in case of using indicator for example)?

well ... let's take AbsoluteStrength indicator from MT5 CodeBase (fixed version of the indicator is on this post #4).

bullish (Bull market) :

bearish (Bear market) :

ranging (choppy market - means: buy and sell on the same time) :


flat (sideways market - means: no buy and no sell) :

correction :

correction in a bear market (Bear Market Rally) :



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