My thought on the different market states.

Discussion in 'Trading' started by RangeTrader, Sep 23, 2012.

  1. Know what the trickiest thing about technical indicators is? Most of them only work in specific market conditions, and market conditions are always changing.

    Also, the market is never fully in a single state. It tends to have a single dominant state though at any point in time.

    The trading conditions I am best at are cycling range states. Also, I like to trade parabolic Runs and momentum moves if I catch them in time. I hardly bother with trend trading... Hardest type of trading there is!

    Here is the best description of the market states in my opinion...

    Trend State
    Cycle State(Range/Wave Count State)
    Momentum State

    Here are some interesting behaviors of different states...

    Both momentum and trend states like to steadily transition into Cycle States.

    Momentum states are usually always triggered by big news catalysts.

    Cycle States which decline to sideways chop like to transition into trend states.

    Luckily for traders market states change gradually unless there is news catalyst so trading strategies can be modified rapidly to keep the good trades rolling in!

    Sometimes it takes an hour of price action at the start of a trading session to solve what state the market is in... Prediction of market conditions is MUCH easier than where it's going to go.

    Funniest thing is that even though I may appear to use a lot of indicators... I'm usually only paying attention to price and one indicator depending upon what is going on.
  2. The funniest thing is I detest trend trading so much I usually just wait for the market to start to range and cycle before trading.

    Momentum and parabolic moves I am generally fine with.

    What can I say... I am a median return trader. I am not comfortable with trending prices! Haha...

    There is just something about steady eight hour long choppy trends that just drives me up the wall...

    While fast momentum moves are no stress if I can solve the curve fit in time...
  3. What are these three states? I'm more used to thinking in terms of either trend or chop ... so am interested in your idea of three states, but don't understand what they are ... what are they? what sets them apart? what defines the market being in one state rather than another?

    Thanks for the clarification.
  4. Trend > Price is moving fast enough to strip out cycles.

    Momentum > Price is oscillating with a high waveform. Can easily be detected with EMA acceleration readings.

    Range/Cyclic > Price momentumn is below 5 pips/hour and each cycle retraces at least 50% over the other.
  5. Detecting Momentumn vs Trend... First is a momentum situation, and second is trend...

    Momentum cycles also have a MUCH higher candle range than trending markets. Momentum moves generally start downward from positive price strength or start upward from negative price strength.

    This is actually necessary in order to get the full 100% snapback.

    If you shorted that first trending cycle down... By the time it came to it's end you would know the market was down-trending and not cycling anymore.

    Hmmm... That's the interesting thing about trends... Sometimes you can accidentally be positioned correctly into them as they begin because the cycle trade setups are correct going into it for the play. But, usually it's just sideways chop going into trends... Hah

    As for entering into a trend... What a headache!
  6. Thanks.
  7. KingJedi


    Nice post, I tend to like the cycle days better myself as I use trailing stops.. what do you think was up with friday? quad witching effect? I havent looked back and any priors yet to see
  8. Oh god Friday... That was a real humdinger... Caught the runup then got ripped apart a little by the snapback. Ended the day heavily positive though.

    I have no idea... I have NEVER seen anything like that that I can remember... Massive 80 pip moves with ZERO news catalysts...

    I just chalked it up to some multi billion dollar funds battle over the 1.3 EUR/USD strike driving the momentum cycles... If you noticed there was always a sudden SURGE as the market crossed 1.3.

    You don't see that normally... I mean, you normally see decent reactions to the 1.X numbers... But that was ridiculous!