When you trade in a trading range, you have to be nimble and close out the position at the slightest sign of reversal. In trading range, buy weakness and sell strength unlike in trends.
Methods and Techniques
There is no single method for identifying trends and trading ranges. There are several methods, and it pays to combine them. When they confirm one another, their message is reinforced. When they contradict one another, it is better to pass up a trade.
1. Analyze the pattern of highs and lows. When the rallies keep reaching higher levels and declines keep stopping at higher level, they identify an uptrend. The pattern of lower lows and lower highs identify a downtrend, and pattern of irregular highs and lows points to a trading range.
2. Draw an uptrendline connecting significant recent lows and a downtrend line connecting significant recent highs. The slope of the latest line identifies the current trend.
3. Plot a 13 day or longer exponential moving average. The direction of its slope identifies the trend. If the moving average has not reached a new high or low in a month, then the market is in a trading range.
4. Several market indicators such as MACD and the directional system (section 27) help identify trends. The directional system is especially good at catching early stages of new trends.
Trade or Wait
Conflicting Timeframes
When you are in doubt about a trend, step back and examine the charts in a timeframe that is larger than the one you are trying to trade.
Methods and Techniques
There is no single method for identifying trends and trading ranges. There are several methods, and it pays to combine them. When they confirm one another, their message is reinforced. When they contradict one another, it is better to pass up a trade.
1. Analyze the pattern of highs and lows. When the rallies keep reaching higher levels and declines keep stopping at higher level, they identify an uptrend. The pattern of lower lows and lower highs identify a downtrend, and pattern of irregular highs and lows points to a trading range.
2. Draw an uptrendline connecting significant recent lows and a downtrend line connecting significant recent highs. The slope of the latest line identifies the current trend.
3. Plot a 13 day or longer exponential moving average. The direction of its slope identifies the trend. If the moving average has not reached a new high or low in a month, then the market is in a trading range.
4. Several market indicators such as MACD and the directional system (section 27) help identify trends. The directional system is especially good at catching early stages of new trends.
Trade or Wait
Conflicting Timeframes
When you are in doubt about a trend, step back and examine the charts in a timeframe that is larger than the one you are trying to trade.
When you trade trading range, you must be alert and close the position at the slightest sign of reversal.
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Yes, agreed. Thank you, Heinstyli
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