Spotting Trends and Ranges for Profitable Trading
A simple guide for beginners
Trading the financial markets can seem complicated for beginners. "Should I trade the trend or the range?" This is a common doubt. Understanding the difference between the two, and identifying them correctly on the charts is crucial to making profits. Let's break it down into simple terms.
Trend vs Range - What's the Difference?
A market trend is when the price is consistently moving in one overall direction - either up or down. For example, if a stock price is rising for weeks together, it's an uptrend. The uptrend shows that the bulls (buyers) are in control.
In contrast, a trading range is when the price is moving within a defined high and low, without a clear direction. The range shows that neither buyers nor sellers have control. The price bounces between support and resistance levels instead of breaking out.
So in simple words:
- Trend - Clear directional move
- Range - Sideways choppy move
Understanding whether the current market condition is trending or ranging can save traders from bad setups and losing money.
Pro Tip - Look at the slope of the moving averages to identify a trend. Uptrend if rising, downtrend if falling.
Equilibrium vs Disequilibrium States
The market is always oscillating between equilibrium and disequilibrium. Equilibrium is when the buying and selling forces are balanced out. Ranging markets signify equilibrium conditions.
Disequilibrium happens when either the buyers or sellers become stronger and overpower each other. This leads to breakouts from ranges and start of trends. Disequilibrium creates opportunities!
So equilibrium = balanced/ranging market
Disequilibrium = imbalanced/trending market
Understanding this concept helps traders to identify change of character in markets.
Pro Tip - Trade breakouts from ranges. Hold trends until equilibrium is restored.
Fractals for Confirmation
Fractals are five candle formations that signal potential reversals. They act as excellent visual markers for both trends and ranges across timeframes.
In an uptrend, a five candle up fractal confirms buying demand. In a downtrend, a five candle down fractal confirms selling pressure. These act as trailing stops and areas to book profits.
Within trading ranges, fractals mark potential support and resistance levels for trades. Two connecting fractals form the range borders.
So in short, fractals help identify:
- Trend confirmation
- Exhaustion signals
- Key levels in ranges
Pro Tip - For better accuracy, combine fractals with other indicators.
I hope this simplified explanation helps you understand the core concepts better. Do leave your feedback and queries below!
Below given is video from our youtube channel "Share market malayalam by Muhammad Riyas". I have explained these concepts in detail in this malayalam video. Check it out.
Price action trading part 4 - https://youtu.be/XqJplzQnEQg?si=iBAYUWmKTGORMo1w
Last part of video discusses about fractals in market structure in different time frames.
0 Comments