Market MovementsProfit Is Possible In Any Market Situation!


  • For those who approach financial markets for the first time the news is that ... in any market situation you can profit!
    Financial markets as erratic and often chaotic, fundamentally appear in two configurations: directional/Trending and Lateral/Ranging/side ways

     

    • Directional Market

    Directional markets from technical analysis are identified by a series of higher lows in the case of an uptrend and lower highs in the case of a downtrend.

    The main difficulty for a trader is to recognize when a lateral/ranging market becomes directional/trending and vice versa. The tools which allow us to identify the change of state are volatility and strategy indicators which can be used to profit from breakout strategies.

    Lateral markets are usually enclosed in a range or channel. The breakout of this range determines a change in state. The change from lateral to directional market signals an increase in volatility. The factor which pushes the market out of its current range is often that of high impact news of significant importance. So it is useful to be aware of important news announcements. In fact, just before the release of macroeconomic or very important news, the market is contained in a range which can be identified from technical analysis by making use of supports and resistances. This range once violated generates a price explosion which in technical jargon is called a "volatility breakout".

     

    • Lateral Market

    A lateral market is non-directional and is a result of a once directional market. Every market before resuming a trend that is bullish or bearish passes through a phase of lateral type. From a technical point of view, it is referred to as a moment of accumulation where operators are waiting for more important news.

    An indicator which allows us to take advantage of this type of market is the Bollinger bands. This tool enables us to easily understand the range where prices move. When the bands are tight with price in between them it takes the form of a “squeeze” indicating the absence of volatility in the market. It is therefore reasonable to think that prices will continue to fluctuate within this range which often coincides with supports and resistances. When the price touches the upper band, the trader should open a short position on the other hand when the price touches the lower band traders should open a long position.

Interviews

  • the Analyst's answer

    Jean Grossett - Financial analyst

    As already understood, the market alternates continuously on any time frame from directional to sideways. The trader in order to recognize and use both phases should use a volatility indicator, such as the above mentioned Bollinger bands, in addition to the correct application of technical analysis. Obviously the trader could take advantage of both market situations, or in accordance with his risk appetite and his operational preferences can decide to work only with one of the two market states.
    In both cases, by the use of appropriate strategies, the chances to make a good profit are almost equal.

  • the Manager's answer

    Robert Danvil - Investment Manager

    Markets are continuously in a state of flow, moving from one level of volatility to another. This can be viewed from the different time frames, showing a perspective of these volatilities.

    It is good to view markets from the perspective of directional and Lateral/non directional. However it is also important to note that what is lateral on one time frame indicated by a Bollinger band indicator is just simply a correction/ retracement of a major trend in a higher time frame.

  • the Mentor's answer

    Nicholas Kihn - Forex coach and mentor

    Haven made the above observation; i have personally resolved that the markets are of one state. This state is directional in the form of bullish or bearish trends, which has retracement levels enclosed. A deep understanding of financial time series using additional tool like oscillators and HeikenAshi indicators, to view associative relationships between different time frames will go a long way into identifying the beginning of the directional state of a security. This can be achieved using simple data science techniques with excel & python, or advanced machine learning algorithms

    I will also advice that traders should look into other time frames of the same markets, because they could shed more light on the directional perspective of the security.

    I consider trading as an attempt to shooting a moving target, and that moving target is the directional state of the market, with movements higher than the spread which is enough to secure a reasonable profit at a good risk to reward ratio.

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