How can I tell if the market is Trending or Ranging?
In general, there are two basic types of market conditions. A ranging market or a trending market, as defined by the type of price movements taking place over a certain period of time.
The importance of understanding the basic differences between the two cannot be overstated, this is especially true if you're using an expert advisor (EA or Forex robot). Being able to determine whether you are in a ranging or a trending market may literally be the difference between your success or failure in trading.
In general, there are two basic types of market conditions. A ranging market or a trending market, as defined by the type of price movements taking place over a certain period of time.
The importance of understanding the basic differences between the two cannot be overstated, this is especially true if you're using an expert advisor (EA or Forex robot). Being able to determine whether you are in a ranging or a trending market may literally be the difference between your success or failure in trading.
Typically, a trading strategy is designed to work within one type of market condition. The opposite market will provide false signals, as such, it is very important to tell when market conditions have changed so that trading strategies may be modified as well. As a side note, some of the best Forex robots can detect and adjust to changing market conditions automatically. That is something you should look for when comparing Forex robots.
Ranging
When a market is 'Ranging,' it is simply moving up and down within support and resistance levels without moving above the highs or below the lows. How much the price can move within a 'range' depends on differing factors If, however, the range of price fluctuation is very minor, most traders would consider that to be 'chop' where the market is just moving sideways with very little activity upwards or downwards. Some professional traders will take advantage of a ranging market, buying or selling again and again during these support and resistance patterns. If you're using an automated Forex robot, make sure it has the ability to detect when market conditions change and the market is no longer ranging.
Trending
Trending Markets look very much the same as Ranging Markets but with an obvious up or down direction. A trending market is not absent fluctuations in price. In fact, it may even have small reversals. It will, however, correct its course and continue in its original upward or downward direction. That is, of course, until that trend is over.
'The trend is your friend!' Chances are you've heard that little adage before. That really is sage advice. Many investors have had tremendous success by learning to spot a new trend and get on for the ride. As for Forex robots or expert advisors, some of the better ones have algorithms designed to determine whether the market is trending or ranging in order to adjust its buying and selling decisions. This can be a great way for inexperienced traders to get started with trading as these robots can be based on years of profitable and advanced strategies. For those that are new to trading, some of the best Forex robots are designed to be simple to set up and easy to operate. In fact, many will even place trades on your behalf, automatically.
Ranging or trending conditions can be found in just about any time-frame market whether you're looking at yearly, monthly, daily, or even minute charts.
As with any new business venture or idea, it is important to understand the basics of investing in the markets and your own risk tolerances before jumping in over your head.
