Range Bound or Trending - The Best Way Traders Can Determine Market Conditions

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Why it’s important to
determine if markets are
trending or choppy?


1. Some indicators do not work well in choppy
market conditions.

2. Some indicators do not do well in trending
market conditions.

3. Before trading breakouts strategies, make
sure markets are trending.

4. Before trading reversal strategies, make sure
markets are choppy or range bound.


Follow the rules and don’t get run over by the angry train.


1. Look at the chart visually without any
indicators.

2. Look at the slope of the trendline.

3. Trending markets usually have a slope greater
than 20 percent either upwards or downwards.


The first thing to do is to check the slope of the trendline.


Price resumes trending quickly after each pullback.


1. Choppy markets trade mostly horizontally
without much of a slope or direction.

2. Prices drift back and forth, between the upper
resistance line and the lower support line.

3. Often times this is called trading channel.


Prices are sluggish and markets slowly drift.


1. Another way to determine if markets are
trending or range bound (choppy) is to use
technical indicators.

2. A simple indicator to determine if markets are
trending is a 20 period exponential moving
average.

3. Exponential moving average is available on all
popular technical analysis programs.


Microsoft above 20 bar exponential moving average.


Intel below 20 bar exponential moving average.


1. Oscillators work well when markets are
choppy and range bound.

2. Oscillators measure overbought and oversold
market conditions.

3. Do not use oscillators when markets are
trending.


1. A solid oscillator to measure overbought and
oversold levels is the Relative Strength
Indicator.

2. When the RSI indicator reaches 70 or higher,
it indicates overbought market levels.

3. When the RSI indicator reaches 30 or lower, it
indicates oversold market levels.

4. For short term market swings, use a 5 bar RSI
time frame period.


Before using technical indicators
determine if markets are trending or
choppy (range bound).


Thank you for watching the lesson.

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Range Bound or Trending - The Best Way Traders Can Determine Market Conditions

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