INDICATORS
Trading Range vs. Platform-Building Markets
Let The Indicator Fit The Market
by Martha Stokes, CMT
Oscillators are often the first indicators to signal a breakout, but most traders don't notice. Here's how you can interpret oscillator patterns with confidence.Traders are taught that there are three types of trends: up, down, and sideways. They attempt to select strategies and indicators based on these types. However, there is another approach that makes trading easier and more reliable.
A far more successful approach is to let the market condition dictate what indicators you should use. Market condition is not only the analysis of the relationship between the primary (long-term) trend, the intermediate-term trend, and short-term trend but also the analysis of the short-term bias and the intermediate- and long-term strength and direction, as well as the analysis of the market participants. Who is trading, how are they trading, and what are they trading? By understanding these facts you can read the current market condition to determine whether it is a velocity, moderately trending, platform-building, trading-range, bottoming, or topping market condition.
MARKETS IN AN UPTREND
Uptrending markets have basically three modes: value-oriented or accumulation by institutional investors, a moderate investing and trading growth trend where more market participant levels enter, and speculative short-term trading for profits by institutional traders along with news-driven emotional buying by inexperienced investors and retail traders.
MARKETS IN A DOWNTREND
Downtrending markets have three modes: profit-taking on short-term trades, selling short during correction phases by experienced market participants and large-lot institutional traders, and panic selling by inexperienced investors and retail traders.
...Continued in the November issue of Technical Analysis of STOCKS & COMMODITIES
Excerpted from an article originally published in the November 2007 issue of Technical Analysis of
STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2007, Technical Analysis, Inc.
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