2 Market Conditions that We Will Find Constantly and How to Trade Them Profitably

2 Market Conditions that We Will Find Constantly and How to Trade Them Profitably

Learn to Trade Different Market Conditions

When I first started learning about the Forex Markets, I remember reading somewhere that you must trade with the trend. I spent hours looking at charts trying to guess and find that “magical trend” that could give me a potential home-run. However much later, when I finally learned to trade profitably, I understood that markets are not always trending, and that doesn’t mean you can’t trade them successfully, it only means that you must understand the specific conditions where you are standing and thus your expectations must be different and adapted to each case.

I am sure all of us have heard, at least a thousand times, the adage: “Trade the trend, the trend is your friend”. However for me (a Price Action Trader); it’s very important to take all this “advices” with a grain of salt and try to go a little bit further to understand what price is telling us and exactly how to better understand whatever is happening in the Forex Markets.

As you probably know, markets move in a sideways action at least 60% of the time, or more. That’s why when we are looking for trades we must understand exactly the kind of market we are entering; we must always ask ourselves these simple questions:

  • Is the market in a range?
  • Or is the market trending?

To better understand what I am talking about, here I’ll post a range bound market (I always use the daily charts to understand the price action story; smaller timeframes are too confusing for me).

Here’s a chart of the AUD/JPY for today: June 26th 2015:

AUDJPY02

As you can see, for several months price has done nothing but to move in a range and there is no sign that this bias is changing any time soon, so why fight this reality?.

Right now we are in the middle of such range without any clear indication of further direction.

If, for any reason, your system indicates you that you should take a trade in this kind of market, you must be very aware that the trend might not “be your friend” this time, since there’s none.

That doesn’t mean you can’t trade it and make good money out of it, it only means you must trade it knowing that the swings you might get from this market will be choppier and less predictable.

If I was trading this market right now, I’d normally enter only if I have a very clear signal and get out of the trade expecting a smaller profit, because I’d rarely let my trade run, since most likely it will find areas of noise and choppiness all around the chart. However if I find a potential trade and the risk reward is not clearly in my favor I might even skip the trade and wait for the next set up. Trading in range bound markets is normally a riskier proposition.

However if the market we are analyzing and/or getting a posssible setup looks more like this; the chart for today’s NZD/USD market:

 

NZDUSD02

Here we might have a much better chance of entering our trade with the trend and maybe even using a strategy to let our position run for a longer period of time, or at least part of our position, since we have a massive bearish force that has been developing itself for several months, and for now there’s nothing that will tell us that this bias is changing.

In this kind of markets wee can expect cleaner and longer moves, trail our stops can be a good possibility and overall we can make a much better trade in a risk/reward aspect.

In conclusion, we can trade profitably the range bound markets and the trending markets as well. However we must be careful to analyze and understand what we are doing and where we are geting ourselves into so our expectations are set according to the reality of the markets.

Our trade plans must always include the case of a range bound market and/or a trending market and we must have the mental flexibility to understand that not all markets are created equal and trade them accordingly.

 

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6 comments on “2 Market Conditions that We Will Find Constantly and How to Trade Them Profitably”

  1. Matteo Pizzarello Reply

    Paul read your book and had a very similar story to yours , I trade since two days your scalping strrategy and made 30 percent since I started with it thank you ever so much , I am awaiting a good opportunity to trade your daily weekly strategy too I am sure they will work as well / And most I want to say you are a great man to share these with everyone I am sharing your strategies too as I like to help like you . Wonderful man !!!!!

    • Paul Reply

      Thanks Matteo I am glad you are finding the strategies useful! let me know if I can be of help. Best luck in your trading!

  2. Matteo Pizzarello Reply

    here my ff profile if you want to share it , and you can see the spike up , I was doing well already but I am having to recover as much as you did because I failed to place a stop and had the silly idea that if you have enough margin its ok , Idea that could also work and did work previously for me but it works if you have in the bank ten times what is in your account and today I would not suggest it to anyone .

    http://www.forexfactory.com/kribstreet

    I am far away from recovering all I lost but I am sure with time and your strategies and STOPS I will 🙂 thanks so much again

    • Paul Reply

      Thanks for sharing your profile! yes, stops are definitely a must, they are the reason must of us fail at the beginning. We tend to think that at some point “things will fix” if we just wait a bit longer. But we learn the hard way that they don’t, and we lose a massive position that basically wipe us out. I am glad that you are doing much better now!

  3. Matteo Pizzarello Reply

    Also I wanted to say that you mention the scalping strategy works only following the trend but I had great results during a sideway ranging moment I basically made profits on every wave of it . It’s amazing . will let you know how does it go with the longer timeframe strategy you suggest .

    • Paul Reply

      I am glad to hear the scalping strategy is working for you! If you want to go for the super safe I recommend to do it only with the trend. But of course trends are fractal so it can work for smaller time frames trends.

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