When two
people go to war, the foolish man always rushes blindly into battle without a
plan, much like a starving man at his favorite buffet spot.
The wise
man, on the other hand, will always get a situation report first to know the
surrounding conditions that could affect how the battle plays out.
Like in
warfare, we must also get a situation report on the market we are trading. This
means we need to know what kind of market environment we are actually in. Some
traders cry saying that their system sucks.
Sometimes
the system does in fact, suck. Other times, the system is potentially
profitable, but it is being utilized in the wrong environment.
Seasoned
traders try to figure out the appropriate strategy for the current market
environment they are trading in.
Is it time to bust out those Fibs and look for retracements? Or are
ranges holding?
Just as
the coach comes up with different plays for particular situations or opponents,
you should also be able to decide which strategy to use depending on market
environment.
By
knowing what market environment we are trading in, we can choose a trend-based
strategy in a trending market or a range-bound strategy in a ranging market.
Are you
worried about not getting to use your beastly range-bound strategy? How about
your Bring-Home-Da-Bacon trend-based system?
Have no fear!
The forex
market provides many trending and ranging opportunities across different time
frames wherein these strategies can be implemented.
By
knowing which strategies are appropriate, you will find it easier to figure out
which indicators to pull out from your toolbox.
For instance, Fibs and trend lines are
useful in trending markets while pivot points, support and resistance levels are
helpful when the market is ranging.
Before spotting those opportunities, you have to be able to
determine the market environment. The state of the market can be classified
into three scenarios:
·
Trending up
·
Trending down
·
Ranging
