Disclaimer: The opinions expressed here are for general informational purposes only and are not intended to provide specific advice or recommendations for any specific security or investment product. You should never invest money that you cannot afford to lose. Before trading using complex financial products, please ensure to understand the risks involved. Past performance is no guarantee of future results.
In this chapter of the price action series, we will cover the different market conditions of an asset. We will also cover how to approach these conditions
If you missed out on the other chapters you can follow the links below:
3: Plot Support and Resistances
Different Market Conditions
Market conditions can be divided into 2 branches: sideways, the red area, and trending, the green area.
Trending Markets
A trending market can be trending up or down and is defined by making higher highs and higher lows (trending up) or lower highs and lower lows (trending down). Trending markets also can be defined by their strength, strong trend, and weaker trends. Nevertheless, we need to be aware that on heavily trending markets we need to be very careful when trying to trade against the trend.
A simple way to classify a strong trend is by a significant move in the price alongside heavy volume. If we are in a strong trend, the price might initially stall at support and resistance zones but then proceed to break right through. This is why we need to take precautions and need an even greater amount of confirmation if we decide to trade against the dominant trend. In heavily trending markets, it’s often safer to trade in the direction of the dominant trend, not against it.
Ranging Markets
In a ranging market, both long and short positions are effective as neither bulls nor bears are in control of the dominant trend.
Side note for Futures Markets
Trading long is betting that the price will increase and trading short is betting that the price will decrease. These definitions are used in futures trading. On the Spot market, the analogy with long and short can be made with buy to bet on a price increase and selling with the intent to secure gains, and/or aiming to buy back at a lower price to increase your amount of coins.
To recap
If we have a bearish or bullish bias on the monthly or weekly, we want the daily to “tell” us the same bullish or bearish bias that we have on the higher time frames. The other way is by candle formations which were covered in the last chapter. Just know that we can use candle wicks to help predict future movement. Longer wicks, for example, are an indication that the price is indeed reacting to the support and resistance levels.
In the next chapter, we will dig into trend lines and some useful indicators that can be used on price action strategies. Last but not least we will explain the importance of using a proper money management technique and how we can apply that in Tuned.
Stay Tuned!
If you missed the other chapters follow the links:
