Reading the market environment
Trending, ranging and volatile markets, and which approach suits each one.
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Lessons
- 01Trending versus ranging markets.A trending market makes a run of swings in one direction: higher highs and higher lows in an uptrend, lower highs and lower lows in a downtrend. A ranging market turns back and forth between a ceiling and a floor. Swing points, a moving average's slope and ADX help you tell them apart.
- 02Measuring volatility.Volatility is how far price tends to move in a given period. The most common measure is average true range (ATR), the average of recent true ranges, where true range includes any gap from the previous close. ATR shows how far a pair usually moves, but it gives no direction and only describes the past.
- 03Matching your strategy to the market.Match the setup to the market's behaviour. In a trend, setups that buy pullbacks or breakouts and trail the stop suit the move. In a range, buying near support and selling near resistance with a fixed target suits it. When signals conflict, news is due or costs are large next to the target, standing aside or cutting size is the safer choice.