Understanding Trending and Ranging Markets


Access Free Content

 

Video Transcript:

Hello, traders. Welcome to the Advanced Technical Analysis Course. This is the module number one, Technical Analysis 101. Here, you will learn all the basics that you need to get before moving forward into what is really advanced technical analysis. In this lesson, we will teach you about trending markets and ranging markets. Some of you may already know the difference between a trending market and a ranging market, but in this lesson, we will teach you why it is important to actually know the difference.

A trending market is easy. There is directionality and price is moving, either up or down. In an up trend, we are making higher highs and higher lows. In a down trend, we are making lower highs and lower lows. This is easy and I think that everyone that is watching this course already knows this.

In a ranging market, there is no directionality. Price is dropped in a range. We have a support area that is unbroken and a resistance area that is unbroken and price is simply bouncing off these two levels, creating what we call a range.

Trending and Ranging Markets

Here’s an example of a chart that is trending to the upside. You can clearly see that we are making a higher high, a higher low, a higher high, a higher low, a higher high, a higher low, etc. We are in a trending market. This is a ranging market. We have area of resistance right here that has been tested once, twice and three times. Remember that this is just a fake out because this triangle, even though that the blue candle closed above the area of resistance, the red candle opened and closed below it and we have this area of support which resisted here, here, here and now we are moving up.

Rangers are clear, defined areas of support and resistance that remain unbroken and trends are a defined price action that is moving higher or lower. This is the basic definitions of trending and ranging markets, but why is it important to know the difference?

It’s important to understand this because we can trade both of these markets. In this advanced course, we will teach you how to analyze price action in both ranging markets and in trending markets and how to capitalize from both of them. The techniques and setups we’re going to use are different, but we will use some of the same indicators.

In ranging markets, we are mostly going to use oscillating indicators because we need to know when price is overbought or oversold to either sell or buy. We are going to use that in confidence with our levels. In ranging markets, we are going to use some other kind of indicator to try and get on the main move once the corrections that you saw on the previous slide. This is for another lesson. For the moment, this is why it is important to know the difference.

 

As administrators, we will learn to assess high probability interest in either market conditions. It’s important to understand the difference between ranges and chop. This is key. A range is a clear, defined area that has a support level that is unbroken and a resistant level that is unbroken and prices bouncing off of these two levels, creating an oscillating price action. A chop is just a mess of a price action that is untradeable, but still can be considered a range because it doesn’t break a support or resistance. A range can be traded and can be traded profitably. A chop will only chop you.

Once we move forward, you will understand that sometimes small rangers are continuation patterns in trending markets. This is the key to it. This is why we need to understand the difference between these two market conditions because sometimes when we are trading with advanced continuation patterns, we will find that sometimes rangers in the middle of a move can be a consolidation period before the next push. You will not trade a range, but you will try to trade the range breakout to get onto the main move. You will learn how to make the difference between a true range and a continuation pattern on a strong move, either to the upside or to the downside.

Let’s go to the charts, so we can look at some trending markets and ranging markets. Here’s my empty form platform. What we’re going to do, we’re going to go through some of these currency paired charts just to look at some trending markets, some ranges, some chop and to make the difference between a true range, a choppy price action and what can be considered as a range but would be better considered a continuation pattern.

As technicians, we need to know the difference between a true range or a market that is just oscillating between a support and resistance level that we can profit from, which sounds very easy to do but it’s actually not that easy because sometimes price doesn’t achieve the extreme levels.

In further lessons, we will teach you how to know for sure when we teach you how to use indicators to know that. You need to know the difference between that and a range or a kind of range that might be just a continuation of the main move and how do you know this; because when you find a range in the middle of a move, you may feel the urge to trade it but you need to understand that if it’s in the middle of the move, it might be just a consolidation period before the next push either to the upside or downside. A true ranging market, it’s just a big range like I’ve already told you that has no directionality.

The big thing to understand here is that when we have directionality, we need to be trading to a side of the trend and when we don’t have directionality, we need to find our entries at the top and the bottom of the range and we need to be careful with chops.

Let’s open up the GVPUSD. Let’s start with this. This is what is called a chop. Let me put some horizontal trend lines here. Here’s another one. Even though we are trapped inside an area of resistance, we can see that is tested here by this week here, by these two candles here, a week, two weeks, a fake out, etc., and an area of support which is tested once, twice, three times, four, five, etc. This is untradeable.

Let’s imagine you enter here after the rejection of this area, boom, you have a loser. Let’s say you enter here. You might be smart enough to move your stuff to break even, but you don’t make any money out of it. On the other side, if you enter here, you’ll get chopped. What I’m telling you is that this has no clear rejections of the areas and continues to move to the downside, rejection, another downside and continues to move to the up-side.

Trending and Ranging Markets

To be a good technician, you first need to understand and to make the difference between when it’s a good market to trade and a bad one. Of course, guys, this is a horrible market and choppy market to trade.

Now that we have made the difference, let’s go to this amazing uptrend. You can see that we are making higher lows. We have the first low here at the bottom of this down move. We first make a high and then we make a low. We have a new low that is higher than this low and a new high that is higher than this high. We are now in an uptrend. We will be looking to trade the trend.

In this advanced course, we will teach you everything you need to know to make your trading easier. I’ll be honest with you guys when you make your trading easier is when you see your profits rolling in. It’s great to find peaks and counter trend trade, but it’s easier to just trade the trend and take your profits in. This is easier because when you trade with the trend, you will have a higher percentage of winning trades than if you are just looking to sell tops and buy bottoms.

Let’s return to this trending market. As you can see, we are in a trending market up until we arrive to the middle of this range. Let me show you with a rectangle, what I’m talking about. After we made this new high, we made this new higher low and we made this new higher high barely a new higher high. We started to trade inside a range.

Let me see. This is a 75 pip range, which is nice because in a 75 pip range, you can profit from 30 to 45 pips on each trade or on each bounds of support or resistance. Since we are in a ranging market, we decide to wait for the breakout of this consolidation period to trade the upside of the breakout. When we break above it and re-test this resistance and support, we have an entry for 130-pip winner.

This is what a consolidation period would look like on an advanced continuation pattern. As I already told you that on the future lessons, we will teach all about continuation and reversal patterns but you need to understand in this lesson that sometimes when you are in an uptrend, you will enter a range before continuing with the main move.

Everything is about perspective. You don’t want to be the trader that gets caught in the first level of thinking that thinks, “We are in a range. I’m going to look for bounces of resistance to sell and bounces of support to buy.” No. You see the entire picture. We are in an up move and since we are in an up move and since you see that the move up has been very aggressive, you can assess that this is actually just a consolidation period before the continuation of the move. You are going to trade the main move and not the range in the middle, which is just as we’ve told you before, a consolidation period before the next jump. We will get into depth on these patterns on future lessons.

Adam

More About

Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

View Posts - Visit Website

Comments are closed.