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Originally Posted by traderix
I use two methods: one for ranging markets and another one when the market is trending .
The problem I have is to recognize the end of the ranging market phase and the beginning of a real trend.
I am sure I´m not the only one
I open this thread with the proposit of sharing methods, indicators helping us to recognize the end of a choppy congestion range of the market and the start of a trend.
All ideas are welcome!
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Ok
First, trend market and range market has intrinsic definitions. Let me explain
A real trend as you said, is the one that goes in tune with the established bias for any particular timeframe you trade. If you're an intraday trader, and let's say you monitor 1hr chart, you look at the daily chart and a comfirmation on the 4-hr chart. If they agree and you see a bull/bear movement in one specific direction (either strong, neutral or weak) then you have established a bias. As a tape reader trader(I rely just on price for trading) that's how I start my trading day. I Also look at dollar index as well to see how it's doing.
The biggest problem trend traders face is the infamous false breakout. On my experience I found out most of the time that's because you believe there's a trend and you go quick place a trade now knowing that you're ridding a pullback/retrace in longer timeframes. Counter-trending against the bias to me is gambling but some people do, I respect that.
Range market has two characteristics
1) consolidation - market stretches, usually testing one price on the upper/lower side(channeling) in anticipation of a breakout or in correction after a abnormal disturbance on bias (news, etc)
Market also consolidates at 00:00 GMT as institutional traders takes position trying to pull themselves away from opening price( opps!!!sorry if I burts a bubble here, I am just telling the truth) Especially on Euro, you'll notice after a while the market begins to trend very slowly until London Market opens, well you know, most of the time.
2) Sideways or the so called "choppy" market - sometimes traders get confused on this one. It's nothing more than a market with no structure whatsoever. Sometimes you can't even connect two prices in one line. Have you notice a particular time frame with too many shadows?(sometimes spikes) You see this most of the time whenever news creates mix emotions among traders. On my experience, this is a vivid, classic example of traders in fear. Just my humble opinion.
Please take a look at 4 hr chart(or 1 hr chart if you like). Zoom out so you can see the whole picture. Just check those long candles, of course you know most of them happens during news time. Look what happens, before and after. Now you get a visual between trend and range Start conecting tops/bottoms and look especially (if you trade on candles) for those candles that reverses from bull to bear or viceversa, everytime market shifts from range to trend. Also look for price testing and how it breaks into a trend. Also take notice and how the news/events pushes the price from one low to a high or high to low, sometimes a new high or low, and notice especially how the price gravitates on the new high or low for a period of time.
I am giving you a basic Idea. I am not going to bore you with other variables I use.
As Indicators predicting Market behavior Here's a quick story
Back in 89, I used flow charts and a DOS 4.3 based software(for those of you who remember) to plot Bollinger Bands and RSI with the help of all those complicated price patterns (diamond tops, triangles, etc) to predict price/market behavior, well pretty much like traders do nowadays(just in case, I worked for a bank) A very stressful underpaid job. But I realised as I gained experience, how erratic an insufficient sometimes those indicators as to price action. It's amazing how nowadays technology plots yout favorite-flavored indicator in the chart just with a couple of clicks. Just take into consideration that all indicators are derivates of price and not necesary are representaive of what's going on with price as it happens.
No offense intended for those who uses indicators. Only talking from experience