How To Trade Trending Markets? – If you can identify a trending market, it will be easy for you to trade it, if it is a bullish market, you will look for a buying opportunity, because you have to trade with the trend, and if the market is bearish, you have
to look for a selling opportunity.
The Market Structure
One of the most important skill that you need as a trader is the ability to read the market structure, it is a critical skill that will allow you to use the right price action strategies in the right market condition.
You are not going to trade all the markets the same way; you need to study how the markets move, and how traders behave in the market. The market structure is the study of the market behavior.
And if you can master this skill, when you open your chart, you will be able to answer these important questions:
What the crowds are doing? Who is in control of the market buyers or sellers? What is the right time and place to enter or to exit the market and when you need to stay away?
Through your price action analysis, you will experience three types of markets, trending markets, ranging markets, and choppy markets. In this Blog, you will learn how to identify every market, and how to trade it.
Trending markets are simply characterized by a repeating pattern of higher highs and higher low in an up-trending market, and lower high and lower low in a down trending market.
As you can see in the example above, the market is making series of higher highs and higher lows which indicates that the market is up trending.
You don’t need indicators to decide if it is bullish or bearish just a visual observation of price action is quite enough to get an idea about the market trend.
Look another example of a downtrend market.
The example above shows a bearish market, as you can see there are series of higher lows and lower low which indicate an obvious downtrend.
Trending markets are easy to identify, don’t try to complicate your analysis, use your brain and see what the market is doing.
If it is doing series of higher highs and higher low, it is simply an uptrend market; conversely, if it is making series of lower highs and lower low, it is obviously a downtrend market.
According to statistics, trends are estimated to occur 30% of the time, so while they are in motion, you’ve got to know how to take advantage of them.
To determine whether a market is trending or not, you have to use bigger time frames such the 4H, the daily or the weekly time frame. Never try to use smaller time frames to determine the market structure.
But the question is what is the right time to enter a trending market?
Trending markets are characterized by two important moves, the first move is called, the impulsive move, and the second one is called the retracement move.
See the example below to understand what i’m talking about.
As you can see, the market is making higher highs and higher lows which indicates a bullish market, if you see this market you will think of buying. But as you can see the market is making two different moves, the first move is an impulsive move, and the second one is a pullback or a retracement move. (corrective move)
Professional traders understand how trending markets move; they always buy at the beginning of an impulsive move and take profits at the end of it.
This is the reason why the market makes an impulsive move in the direction of the trend and retraces before it makes another impulsive move.
If you are aware of how trending markets move, you will know that the best place to buy is at the beginning of an impulsive move, traders who buy an uptrend market at the beginning of a retracement move, they got caught by professional traders, and they don’t understand why the market hint their stop loss before moving in the predicted direction. See another example of a bearish trend.
The illustration above shows a downtrend market, as you can see the best trading decision is to sell the market at the beginning of an impulsive move.
If you try to sell in the retracement move, you will be trapped by professional traders, and you will lose your trade.
Now we know how to identify downtrends and uptrends, and how to differentiate between an impulsive move, and a retracement move. This is very important for you as a price action trader to know.
BUT the most important question is how to identify the beginning of the impulsive move to enter the market in the right time with professional traders, and avoid being trapped by the retracement move?
To predict the beginning of the impulsive move in a trending market, you have to master drawing support and resistance levels.
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