What Are Trending Markets?

Like the word entails, ‘trending’ markets are characterized by a repeating sequence of upward or downward price action. For instance, a sequence of “higher highs and higher lows”, indicates an upward-moving market trend while “lower highs and lower lows” indicates a downward moving trend. The former is often referred to as an uptrend while the latter, is a downtrend. The examples below will help portray these sequences.

As illustrated in the example above, the market is making a series of higher highs and higher lows, indicating that the market is in an uptrend. In this situation, we can say that the trend has accumulated ‘bullish momentum’ and, therefore, is trending to go up due to an influx of new buyers at higher and higher prices.

Contrarily, in the example above, we can see that the market has entered a downtrend. The ‘lower highs and lower lows’ structure indicates that the market is losing support and therefore, price levels are being lost. In this example, it can be said that the market structure has acquired bearish momentum as a result of new sellers selling at lower and lower prices.

In general, spotting market trends is quite simplistic: Higher lows and higher highs mean the market is going up while lower lows and lower highs mean the market is moving down. Future articles will go into more details about how markets move in cycles using the application of theories such as Elliot Wave counts that explain the movement of price over time.

What Are Ranging Markets?

Ranging markets are straightforward (pun intended). They are often referred to as sideways markets or accumulation phases, because they drift to the right, but remain horizontal for a period of time.

This structure can be found when the market has topped out (after an uptrend), during consolidation phases (between further up or downtrends) or when the market is bottoming out (after a downtrend). 

During this stage, there is no clear winner between buyers and sellers. In fact, there is a brief moment where supply and demand meet at some sort of equilibrium point between two price levels.

The chart above is a demonstration of such a ranging market as price remains between two support and resistance levels. This specific situation could potentially be an ‘M’ or double top. This is where the market tries to break through a price level twice, after initially having broken through resistance, just to be ‘rejected’ by the upper price boundary causing the price to fall. At this point, the trend reverses, as price loses a key level of support by forming a lower low on this specific time frame. 

Trading the ranges is very different from trading trending markets. The reason for this is that ranging markets can switch at a moment’s notice. While an uptrend often ends with a double top (much like a downtrend often ends with a double bottom), a consolidating phase can take longer before either the buyers or sellers lose control. In such a situation, as disclosed afore, it is best to wait for confirmation before making any assumptions relating to the direction of the market. Confirmation as such is usually done with the help of EMAs and price levels, which we will discuss next week.

What Are Choppy Markets?

Choppy markets can best be described as a period of high uncertainty. This is where the price has no clear direction. There is no clear intent on either the buying and selling side. In this situation, there is also no question of a ranging market since no distinct support or resistance levels can be identified. Below is an example of a choppy market.