In this article I want to share with you my thoughts about trending and ranging markets and give you some tips how to identify them and how to choose the best market condition for your strategy.
Here are my trades from 5/4 and 8/4. I had 5/6 ITM which is 85% performance. I am trying to avoid over trading.So, my goal is 3-4 solid trades every day.
Now, t’s time for our topic. Trending or Ranging market? Which is the best for your strategy? Let’s take a look to the first screenshot.It’s from EUR/GBP currency pair.
In this screenshot we have a trending market. You can easily see it from the general and bigger picture, the price is moving upwards or from the EMA’s (the 4 period EMA is above 8 period EMA). Notice that the price always makes new higher highs.We have for sure some pull backs but our resistances can’t stop the strength of the price. Look at the 8 period RSI. The price is moving between 70 level (the higher line) and level 55. It’s a clear up trend. Why is this happens? There are many reasons.Maybe some good news for Euro, maybe the price broke a strong past resistance but the fact is that if your strategy is trading reversals like I do in many cases this is not a good time for you. It’s very possible that the price will not make a reversal in the resistance and make a new higher high and you will be OTM. So, the best choice is to avoid trading reversals in a trending market. In this market condition you should trade and follow a strategy with the trend for being profitable.
Here is another screenshot from EUR/JPY currency pair and there are 2 trades of mine.
In this case we have a ranging market. There isn’t a strong trend, up or down, the moving in RSI is normal and the price is moving between two whole numbers which are our resistance and our support,too. There is a symmetrical channel here and you can take your trades for reversals with safe inside it. I took two ITM trades in the put arrows. In every case I was waiting for the price to touch the resistance and the next candle was negative. Notice my second trade in the second put arrow.The previous candle of my entry hit the resistance but we had a rejection in the same minute and the price was away from the reistance.The next candle was positive and closed in the resistance and I took an ITM put.
The same condition in this EUR/USD screenshot. It’s a ranging market and I took an ITM put when the price hit for the second time the same whole number. RSI for overbought/oversold is always my confirmation. MACD crossovers is another way you can use for extra confirmation,too.