Trend Days vs. Range Days

02/26/2010 12:01 am EST

Focus: STRATEGIES

Is there any way of predicting a range bound or trend market, and if so, how do we predict which way the trend market will go, upwards or downwards?

As traders, all we do is react to what is happening as opposed to trying to predict what might happen.

Once a trend has established itself, we can trade it. Once a range has established itself, we can trade that as well. Even this is not any kind of a guarantee, but at least with that trending or ranging “edge,” we are putting the potential for success more in our favor.

There is an old trading adage that that applies here: “Nothing happens until it happens."

To determine if a pair is trading in a trend, we would look for price action in an uptrend to be making higher highs and higher lows. In a downtrend, we would look for price action to be making lower highs and lower lows.

When a pair is trading in a range, price action will be moving between defined levels of support and resistance for an extended period of time.

Take a look at the charts below for examples of each of these:

chart
Click to Enlarge

chart
Click to Enlarge

By Richard Krivo of DailyFX.com

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