summary on market environment

Market environment simply means the zone in which you prefer to trade on the market chart.

The market environment is grouped into two i.e Trending market and Ranging market.

The Trending markets:

A trending market is the one where prices move strongly in a particular direction for a specific period of time. The market rallies either up or down in a trend for a long time.

Ranging markets                                     

A ranging market is the one in which price is defined between the levels of support and resistance. It remains within these levels range for a certain time.

The commonly used trend indicators include Moving Averages, Bollinger bands, ADX Average directional index, Ichimoku Kinko Hiyo and the Parabolic SAR.

Trend retracements.

 A retracement is a small pullback in the major price movement. It is a temporary reversal in a trend direction of currency prices. Price moves shortly to the opposite direction of the trend before it continues to its original direction.

Retracements can lead to unexpected losses due to premature close of open positions when not identified in time. Mostly price is likely to move back to the predicted direction.

To avoid this, make use of technical indicators such as Fibonacci retracements, trendlines, support and resistance and pivot points so that you are able to monitor such levels in current trend.

Trend reversal

 A trend reversal is a change in the direction of the entire price trend. Price trend normally reverses after attaining its overbought and sold levels.  This is seen when a downtrend changes into an uptrend or vice-versa.

How do you know that a trend is going to reverse?

 Trend reversals conditions can be identified by studying price action in the market trend for instance;

  • Looking at the weaknesses in the trend movements. If price was making higher highs and lower highs in an uptrend but starts making higher lows and lower lows.  This is an indication that a trend is likely to change direction.
  • The a appearance of large candlestick patterns and strong reversal candlesticks like shooting stars, hammer the engulfing, morning and evening stars in the trend. These are more significant when on the levels of support and resistance. This is also an indication of one party giving up to the other and the strongest determines the direction of the trend. This may likely lead to a trend reversal
  • Overbought and oversold conditions on indicators

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