Trending and Trading Markets – Finding The Correct Indicators For Each
In a trend market, prices are moving in one direction, either up or down. The best way to visualize this price pattern is to draw a line that follows the slope of the price. Another characteristic of a trend market is the constant change to new highs and higher lows. Conversely, market prices in a downtrend would reach lower lows and lower highs.
Trading markets do not reach new highs. There is no permanent movement in both directions. The prices tend to ping around near old highs and then fall to earlier lows. A sketch of this kind of price action would uncover a series of peaks and valleys.
Trend markets need trailing indicators. Moving averages (simple, weighted, exponential) belong to this category as well as the MACD (it also has a leading component). These indicators keep you in a trend as long as the trend stays intact. Delay indicators are not successful in a trading market – moving averages tend to flatten in a sideways market and do not provide useful information.
There will always be consolidation phases in the markets that frustrate traders. The Relative Strength Index (RSI), Stochastic Oscillator, and Williams% R are some of the most common indicators found in most charting programs. These tools range between oversold and overbought and are usually limited by an upper and lower range.
Trading markets can be difficult to trade. Despite the use of oscillators, there will be an increased frequency of trading signals, both when buying and selling. Many of the signals will be wrong and whip sawing is very possible.
One of the best ways to capitalize on a trading market is to identify the support and resistance area on the chart. The chances of success can also be increased by taking only the most overbought and oversold signals.
Attempting to participate in a trading market can be very frustrating. The more trade you do, the more we find our comfort. There is nothing wrong with doing a little trading leave and waiting for market conditions that suit your style.
I hope you have found some ideas that will work for you. Good luck in action.