Table of Contents
1. Introduction
Defining the trading conditions (ranging or trending market) at any time is arguably the most essential pre-trading analytical step. It reveals favorable periods for potentially profiting off price moves.
Thus, this concise article discusses both market types to improve analyses and forecasts significantly. Readers will receive exclusive access to a groundbreaking indicator with related foundations for nearly automated practice.
2. Understanding Trending Markets and Ranging Markets
A financial market is always definable at a glance, based on its most recent price moves in two ways – trending or ranging. Discerning the prevailing condition(s) is the bedrock for most dynamic trading strategies.
Trending markets are those in which prices move in one direction for a sustained period. They can be bullish or bearish.
A bullish trend (or uptrend) features market price forming new swing highs for a significant period. It moves through old resistance zones, forming new support areas for future reference.
Conversely, a bearish market is a sustained price decline. The asset breaks old lows and support levels relatively easily while new resistance levels develop throughout the period.
Trending markets are the best for trading because of the relative assurance of a continued price run in any direction.
Trend-following and contrarian traders understand prices can reach their peak or base whenever & wherever throughout the move. However, the conditions are typically still favorable enough to secure profits with decent strategies.
On the other hand, ranging conditions are typically unfavorable because of the markets’ back-and-forth movement within a defined range. They move from one high point to one low point continuously for a notable period.
This market is also called a horizontal, sideways, or choppy one.
A handful of professionals can still navigate ranging conditions. Practical tips include moving to a lower timeframe for more magnification or trading reversals when the market becomes overbought or oversold.
However, most technical analysts prefer to wait for a breakout that may precede a much more favored trend.
3. 5 Common Methods To Identify a Trending Market or Ranging Market
The importance of clarifying the current market conditions cannot be overstated. It is either relatively favorable or not, based on the classification.
Hence, below are some of the most practiced techniques to secure such an assurance:
3.1. Candlesticks Inspection
Mere inspection of candlesticks in price charts can be sufficient for identifying any market.
Trending markets are characterized by higher highs (bullish) or lower lows (bearish). However, ranging markets hardly show such consistency for a defined period.
Newbies may need extensive practice to ensure maximum accuracy with this method.
3.2. Trendline or Channel Presence
Drawing trendlines to connect recent highs and lows is a more engaging method to analyze the charts for trends or ranges.
Parallel trendlines rising indicate an uptrend in an ascending channel. Prices can also fall, indicating a bearish trend from a descending channel.
The lines are typically horizontal in a ranging market.
3.3. Average Directional Index (ADX)
The ADX is a more automated option technical analysts can leverage for free in top trading platforms. Its primary purpose is to weigh the strength of a trend.
One of the most basic applications features the 25-mark on its range. If it is above 25, the market is trending. When below, it is likely ranging.
3.4. Moving Average (MA)
One of the most respected & multi-functional technical indicators, the Moving Average, can also be indispensable in revealing market conditions.
When set correctly relating to one’s strategy, a ranging market will have its price swinging on the line, unlike trending ones with the price above (uptrend) or below (downtrend).
3.5. Bollinger Bands
Prices’ position relative to the Bollinger Bands provides another popular way to discern a ranging or trending market.
A ranging market will feature the price moving in the bands, which is expectedly contracted due to low volatility.
When trending, the price will ascend or descend with the wider band.
4. Streamlining Technical Analysis With the Market Mode Finder for TradingView
While defining contemporary market conditions through chart inspection is effortless for some, novices may struggle without appropriate aid. A few, like the Moving Average and Bollinger Bands, have a high respectable rate, but none comes close to Indicator Vault’s Market Mode Finder.
The TradingView indicator works based on the relative difference between adjacent close prices. Then, it suggests the most advantageous trade entry and exit points.
Here are a few of several benefits exclusive to every user:
- Awareness of trending or reverting periods with bright color indications
- Assurance of the best trade entry & exit levels for every opportunity
- Liberty to trade across all timeframes and financial markets
- Confidence to take or pass every opportunity, credit to the instant notification built-in function
Too good to be true? Click here to confirm these and more unbelievable perks to boost your trading career ASAP.
5. Summary
A financial market is always either trending or ranging.
When trending, the price consistently breaks swing highs and lows (in bearish or bullish conditions) for a significant period.
Conversely, price moves are choppy in ranging/horizontal/sideways markets. They lie within a defined range for as long as possible.
Fortunately, the Market Mode Finder for TradingView is the most recommended trading companion to streamline market navigation significantly. It utilizes color codes to indicate contemporary conditions.
Please promote this article among friends, acquaintances, and any trading enthusiasts. Also, leave feedback from doubts to results for engaging conversations.
