Range Bound or Trending - The Best Way Traders Can Determine Market Conditions


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Why it’s important to

determine if markets are

trending or choppy?


1. Some indicators do not work well in choppy

market conditions.

2. Some indicators do not do well in trending

market conditions.

3. Before trading breakouts strategies, make

sure markets are trending.

4. Before trading reversal strategies, make sure

markets are choppy or range bound.


Follow the rules and don’t get run over by the angry train.


1. Look at the chart visually without any

indicators.

2. Look at the slope of the trendline.

3. Trending markets usually have a slope greater

than 20 percent either upwards or downwards.


The first thing to do is to check the slope of the trendline.


Price resumes trending quickly after each pullback.


1. Choppy markets trade mostly horizontally

without much of a slope or direction.

2. Prices drift back and forth, between the upper

resistance line and the lower support line.

3. Often times this is called trading channel.


Prices are sluggish and markets slowly drift.


1. Another way to determine if markets are

trending or range bound (choppy) is to use

technical indicators.

2. A simple indicator to determine if markets are

trending is a 20 period exponential moving

average.

3. Exponential moving average is available on all

popular technical analysis programs.


Microsoft above 20 bar exponential moving average.


Intel below 20 bar exponential moving average.


1. Oscillators work well when markets are

choppy and range bound.

2. Oscillators measure overbought and oversold

market conditions.

3. Do not use oscillators when markets are

trending.


1. A solid oscillator to measure overbought and

oversold levels is the Relative Strength

Indicator.

2. When the RSI indicator reaches 70 or higher,

it indicates overbought market levels.

3. When the RSI indicator reaches 30 or lower, it

indicates oversold market levels.

4. For short term market swings, use a 5 bar RSI

time frame period.


Before using technical indicators

determine if markets are trending or

choppy (range bound).


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Range Bound or Trending - The Best Way Traders Can Determine Market Conditions

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