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Trending and Trading Markets – Finding The Correct Indicators For Each

A trending market is one where prices move strongly in one direction, either up or down. The best way to visualize this price pattern is by drawing a line that follows the slope of the prices. Another hallmark of a trending market is the steady move to new highs and higher lows. Conversely, in a down trending market prices would be making lower lows and lower highs.

Trading markets don’t make new highs. There is no discernible persistent move in either direction. Prices tend to ping back and forth near old highs and then fall to prior lows. Sketching this type of price action would reveal a series of peaks and valleys.

Trending markets need lagging indicators. Moving averages (simple, weighted, exponential) are in this category as is the MACD (it also has a leading component, too). These indicators will maintain you in a trend as long as the trend remains intact. Lagging indicators are unsuccessful in a trading market — moving averages tend to flatten in a sideways market and offer no useful information.

There will always be periods of consolidation in the markets to frustrate traders. The Relative Strength Index (RSI), Stochastics Oscillator, and Williams %R are some of the common indicators found in most charting software. These tools swing between oversold and overbought and are usually bounded 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 buys and sells. Many of the signals will be false and whipsaws are very possible.

One of the best ways to harness a trading market is to discover the support and resistance range on the chart. The odds for 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 trading one does the more we find our comfort levels. There is nothing wrong with taking a little trading vacation and waiting for market conditions that mesh your style.

I hope you’ve found a few ideas that will work for you. Good luck with your trading.

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19. Jul, 2010

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