stephenleachman
Ausbildung

MARKET CONDITIONS - THE FUNDAMENTAL BASIS OF STRATEGY

FX:USDCHF   US-Dollar / Schweizer Franken
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Market condition are the foundation to every strategy. There are 2 primary market condition Trend and Range, ether the price
is making new highs or lows (trending) or is stuck between a previously established high and low (ranging). Within these 2
types of market conditions comes sub conditions such as that the market can only move in 3 directions up (bull trend), down
(bear trend) or sideways (range). The price movements are considered waves and within the 3 directions that the market is
able to move can be extrapolated 4 wave types, which are as follows:
  • Impulse wave - a strong bullish or bearish move usually making new highs or lows in a trend.
  • Profit taking wave - this happens at the end of the impuls wave and can be a retracement - pullback or consolidation.
  • Reversal wave - failure to make a new highor low which usually happens at the top or bottom of a trend and is a signal of a reversal or deep retracement of the overall trend.
  • Range wave - this wave just bounces of a previously established high and low. They are mainly waves that just zig zag back and forth.

snapshot


Knowing the direction and wave types we can now see that there's only 4 logical areas within the market in which to build
or use a pre configured strategy. These areas are as follows:
  • Breakout.
  • Swing, Pullback.
  • Trend Reversals.
  • Range.
Remember, Build the strategy to fit the market you CAN NOT build the market to fit the strategy. That
also goes for aplying the stratogy, to apply the propper stratogy for the typ of market condition.

snapshot


Also a key factor in market conditions is the speed and strength at which price moves. The slide above is an illustration of
my way in understanding the markets speed and strength or momentum. The definition I give to volatile and volatility is Explosive,
Rappied, it is the speed that the market changes price. Momentum is a directional compass to that volatility . So There are volatile
trends where price is rapidly moving up or down providing very little retracements or pullbacks. There are normal trends where price
is moving steady up or down providing deeper retracements, a nice steady trend. Then there are volatile Ranges they are the raped
moving ranges that make many false breakouts. last there are quiet ranges, this is a tight slower moving range, a time of market
equilibrium. Remember the market always will have to come back to a point of equilibrium.

Identifying market conditions is the first step in my trading plan. Before I do anything else I take blank charts of the assets i'm
looking to trade and look at the market conditions to see what is price doing then i'll look to apply a strategy tailored to fit that
type of market condition.
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