Trending and sideways trading markets

December 21st, 2007 expert Posted in FOREX TRADING ENTRY STRATEGIES |

Online Forex Trading concepts: Trending markets, Trading Markets, momentum indicators, moving averages, trendline violations, economic announcements, price formations, candle formations.

One of the most important trading skills a trader can develop is to be able to tell whether the currency in a trending market or a trading market. In general momentum indicators are highly unreliable in a trending market and trending indicators like moving average based techniques perform very badly in sideways trading markets. It has been estimated that markets trade sideways between 80% to 90% of the time and trade only 20% to 10% of the time.

A trending market is generally when the market is making higher highs and higher lows relative to the time span being traded. (A down trend makes lower highs and lower lows). Other indication of a trending market is when trendlines and / or moving averages point in a definite upwards or downwards direction. In general one should always trade in the direction of the trend when the market is trending until reversal signals are encountered. A trend must be assumed to continue until the weight of the evidence confirms a new trend relative to the time span being traded.

A non trending market is where new highs or new lows are not being made relative to the time span being traded and the price trades between a recent high and recent low. The trendlines and moving averages tend to be horizontal. One can trade in any direction in a sideways trading market.

Events that typically result in trend changes are Economic announcements or meetings, Political or important news or events, Market openings, Historic support and resistance areas and the ongoing battle between the bulls and the bears

Some Indicators that signal a trend change are A trendline violation, A moving average crossover, Momentum indicators signaling changes in momentum, reversal price formations, channel lines violations, bounces off a support or resistance areas, multiple moving average crossovers and candle formations.

Trend changing signals provide excellent signals to ENTER transactions as well as excellent signals to EXIT transactions, either as a stop loss or as a profit.

Most mechanical systems are programmed to be successful in one type of market and very seldom in both.

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