whats going on in the marketBarry Copeland 15 / April / 20 Visitors: 6
whats going on in the market
In this day and age we have numerous sources of information: websites, books, newspaper articles, educational videos, etc. Therefore, it is essential to distinguish which source is going to provide you with accurate information on what is going on. As for the market, determining the trend is going to tell you as much about the current market condition as possible. If you know whether there is an uptrend or a downtrend, that means you practically know what is going on in the markets and you will be able to adapt your trading decision depending on it. When the dominant trend is upward, why would you want to go with short entries when you can gain much more with buying? Many beginner traders, even when coming across a resilient trend that has been going on for a long time, carry on forecasting reversals, whereas they could have been in a much better position by easily following the trend.
It is hard to know what sort of market you are in at any given time until a little bit later, in hindsight. There are, however, some tricks that can help you understand the situation at the moment it is taking place. Some of them are more popular, some of them are more of a personal choice. You cannot tell if anything is the most suitable until you personally test them.
The majority of traders exclusively uses bars and candles when reading graphs but easily dismiss a very efficient and straightforward way that helps them to look beyond all the market noise: the line graph. The purpose of bars and candles are supposed to give access to specific data about what is going on your charts. However, it perhaps not the most useful tool to identify the overall market trend. It would be beneficial for a trader to sometimes take step back (at least once a week) and have a look on the line graph to get an overall picture of what is currently happening.
Conventional technical analysis claims that during an upward trend there are higher highs because you have more buyers than seller and as a result, they drive the price up. The lows are higher as well since buyers carry on buying the dips earlier and earlier. The principle is the same with a downward trend, meaning lows are lower because there are more sellers on the market and it makes the price go down and highs are lower as sellers sell earlier and buyers are not as keen on buying. Some traders prefer this method of getting information on what is going on in the market despite the fact that it seems very simplistic.
Undoubtedly, moving averages are extremely commonly-used instruments which also help determining the direction of a trend. In order to use it correctly, you need to consider some of its features. The length of the moving average greatly affects the time you receive a signal when markets reverse. As for a fast moving average, it can generate too many early and false signals since it responds to slight price changes fairly fast. However, you might be able to exit a trade earlier when the situation is very likely to shift because of a fast moving average. Meanwhile, a slow moving average can also fail you as the signals do not get it quickly enough. Its advantage comes from the fact that it helps you get a clearer picture without market noise.
From time to time traders have to experience sideways moving markets when there is not a lot going on and it is important to become patient. Looking at the long term perspective is important in order to not get caught up in taking any individual trade. If there has been extremely little price action and in overall, the market is flat, it seems that something is about to happen and you need to know. Perhaps, it is waiting for something to happen: a news announcement or thing like this. You have to wait for those favorable conditions and when an opportunity presents itself, do not be afraid to take the trades. If they show, then definitively take them; if they are not showing, then do not force them, i.e. overtrade.
Channels and trend lines are an alternative means of identifying what is currently going on and they might serve as tool to get a hold of range markets much better. Considering moving averages and the analysis of highs and lows can also be applied when the trend is just beginning, trend lines are more appropriate when it is in its later stages. This is caused by the fact that you have to have two touch-points minimum or even more to create a trend line. If you want to monitor market movements in an already established trend, trend lines can be of help. When there is a steady trend and unexpectedly the trend line breaks, it might that a new trend is about to take place. Trend lines during ranges are perfect when you need to detect breakout scenarios. Additionally, trend lines can be mixed with MA due to the fact that their components match each other perfectly.
One of the features of the ADX indicator is the ability to figure out the strength of the trend which can also tell you a lot about the market and dictates your decisions in a way. The ADX indicator has the following lines: the ADX line that describes the strength of the trend, the +DI line which demonstrates the bullish strength and the -DI line which demonstrates the bearish strength. The ADX indicates an upward trend when the green line is on top of the red line and it indicates a downward trend when the red line is above than the green line. When price is ranging, the distance between the two DI lines is minimal and stay around the middle. Similar to trend lines, it can used in combination with MA.
Every instrument and method of getting to know the situation in the market is not perfect so you have to put up with some advantages. Although your goal is not to reach a point when you have only profits and never have to face losses, it is fair to say that this can never be achieved. The market cannon be cheated and the point is to be aware of the market so that your wins are bigger than losses. After all, you are the one responsible for the choice of the strategy and how you decide to apply your knowledge. If you do not want to be in the dark, try to absorb as much new information as possible.