Wednesday, June 11, 2008

Market Types




The market often display's some very familiar patterns of price movement. Once a pattern is established, it becomes the most probable course of future price action until the market changes. There are two types of markets which become important for the beginning trader to identify; trending and trend-less. Each market type has two specific patterns which you will also notice over time.

These market types and patterns can be defined as follows:

Trending - Steady elongated price movements with less than a 45-degree angel with occasional pauses, profit taking, or resting periods.

Uptrends - A pattern of higher highs and higher lows.

Downtrends - A pattern of lower lows and lower highs.

Trend-less - Erratic price movements which are often steep ( greater than 45 -degree angle ) and cannot sustain and therefore must reverse. Although the movements can move many points in a short period of time, they often result in very little net price movement over time.

Choppy - An erratic pattern of higher highs and lower lows.

Sideways - A narrow pattern of lower highs and higher lows.

While up-trend and down-trend days can offer excellent trading results, choppy markets often create stop outs, while sideways markets produce for little in either direction. Our trading objective is to get into a trending market and ride until we make our target objective.

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