Determining Market Condition

Hello New Digital World,
When I refer to "market condition", I am talking about direction and volatility of the underlying.

Ways to determine direction:
1) Take the price change that occurs over a week and divide it by price. The resulting number(normalized) can then be compared to ranges that indicate bull, bear, neutral. OR

2) You can use a displaced moving average of the highs and lows but displaced forward. You would then compare the current price to this forward channel. Ie if the price is above channel than bullish, below channel bearish and in the middle channel neutral. OR

3) You can use 2 sets of simple moving averages. When both SMA’s faster MAs are above the slower, then bullish. When both pairs of MA’s fast lines are below the slow MAs, then bearish. If there is conflict between the 2 pairs of MA, than neutral.

Ways to determine volatility:
1) Take the ATR of the underlying and divide by price. Then use this number relative to ranges to determine volatile, quiet, normal for the underlying.


My question to the board is: does anyone have better or different ways to identify direction and volatility for an underling market?

Thanks,
Trading2013

There are a lot of methods to determin the market condition (Market condition thread is this one).

I like Ichimoku indicator and AbsoluteStrength indicator.

But some people are using MA indicator (SMA with the period 200 for high timeframes, and with period 50 or 55 for timeframes less than H1 - on the way as 'price above/below SMA for bullish/bearish).

The other simple method is Pivot: price above/below pivot line.

I remember famous system created by ramdas for market condition :

and MA channel trading system :

We can use MACD or Stochastic for example ... But I like Ichimoku and AbsoluteStrength

Talking Points:

• In the absence of a trend, trade market ranges
• First identify key levels of support & resistance
• Manage risk with a stop, in the event that price breaks

Many traders consider themselves trend traders. But what happens when the market loses its direction? Instead of being deterred by sideways price action, traders should develop a plan of action for ranging markets. Today, we will review how to identify a trading range, and an easy way to approach trading trendless markets. Let’s get started!

Find The Range

The first task of range trading is to find the range! This process can be easily done by connecting a series of highs and lows with a horizontal trend line. The key is to find two points to connect on your graph. Once found, these values can be extrapolated to form a line of resistance and support, with the area in between defined as our trading range.

Below we can see an example of an active range on the EURJPY. Resistance has been formed by connecting two previous highs near 141.50. Likewise, support has been defined by connecting a series of lows near 140.60. The distance between these two points is a respective 90 pips which the range trader will look to take advantage of as long as support and resistance remain in place.

Learn Forex: EURJPY 30Min Trading Range



Planning an Entry

Once levels of support and resistance have been found, traders can begin planning to enter the market. One benefit of range trading is that traders can take a non-directional look at the market and place both buy and sell orders. Since price is moving sideways, orders to buy will be placed as close to our support line as possible. If price reaches resistance, the same stance can be taken but this time range traders will have a preference to sell the market.

Traders can set entry orders near support and resistance, or even trade with market orders. If you have limited time to trade, entry orders would be the preferred method of range trading. Entry orders will remain pending until price touches the designated level, prior to execution. Market order traders may use a system of confirmation before entering. Confirmation signals may include identifying a candle pattern or incorporating an oscillator signal prior to entering the market.

Learn Forex: EURJPY 30Min with Range Entries

Manage Risk

As with any trading plan, range traders need to consider risk. The major risks associated with trading ranges, comes from a potential breakout of support and resistance. In the event that support breaks, any buy positions should be vacated. As well, if resistance breaks, traders should consider the range invalidated and exit any sell orders. This process can be handled through the use of stop orders beneath levels of support or above key points of resistance.

---Written by Walker England, Trading Instructor


More...

With Forex Volatility So Low, How Might we Trade?

• US Dollar trades at potentially important resistance, Euro at key support
• Forex volatility prices trade near record-lows, setting up for slow moves ahead
• We’re focusing on range trading opportunities in all except the JPY pairs

The US Dollar continues to stick to tight ranges versus the Euro, Japanese Yen, and other counterparts. How might we trade if forex volatility continues to drop?

Watch the video above and updated automated strategy outlook below. What happens when volatility inevitably surges?

Definitions

Volatility Percentile – The higher the number, the more likely we are to see strong movements in price. This number tells us where current implied volatility levels stand in relation to the past 90 days of trading. We have found that implied volatilities tend to remain very high or very low for extended periods of time. As such, it is helpful to know where the current implied volatility level stands in relation to its medium-term range.

Trend – This indicator measures trend intensity by telling us where price stands in relation to its 90 trading-day range. A very low number tells us that price is currently at or near 90-day lows, while a higher number tells us that we are near the highs. A value at or near 50 percent tells us that we are at the middle of the currency pair’s 90-day range.

Range High – 90-day closing high.

Range Low – 90-day closing low.

Last – Current market price.

How are you calculating implied volatility? and how are you categorizing 'trend' and 'range' ie what are the factors based on?

Originally Posted by Trading2013

How are you calculating implied volatility? and how are you categorizing 'trend' and 'range' ie what are the factors based on?

It is related to their article on my previous post. As I understand - trend is "where price stands in relation to its 90 trading-day range".
About volatility ... I am not sure that I understand ... may be - they used Momentum indicator?

You can look at this thread about Market condition.

For example - I am using Ichimoku indicator to estimate market condition, or AbsoluteStrength indicator.

---

About AbsoluteStrength indicator :

bullish (Bull market) :



bearish (Bear market) :


ranging (choppy market - means: buy and sell on the same time) :



flat (sideways market - means: no buy and no sell) :


correction :


correction in a bear market (Bear Market Rally) :


=========

- AllAbsoluteStrength_v2.1 600+ indicator is on this post. This version works with Metatrader 4 build 600 and above.
- AllAbsoluteStrength_V2.1 600+ Signals_V1 indicator is on this post. This version works with Metatrader 4 build 600 and above.

18th June 2014 Monthly to 1 hr FX Majors AUDUSD Monthly to 1 hr Elliott Wave

Alternative Count wave 3 of Elliott Wave for the AUD/ USD from the Monthly to the 1hourly Chart. Covering wave counts, entries, with Stop loss, and realistic target level using Fibonacci and Elliott Wave Analysis.

Just a little explanation about market condition, its direction, trending or ranging and its volatility by using these standard indicators for determine its market condition.



(Example of EURUSD 1 hr chart)

Forex Indicator No.1: Bollinger Bands. The BB indicator is one of the most commonly used Forex indicators on a Forex chart. It consists of an upper and a lower band that envelope the candlesticks and it is through these bands that you tell the market volatility. When the Bollinger bands are squeezed together, the Forex market is moving in a low volatility. When they are far apart, the market is in a high volatility.

Forex indicator NO.2: Average True Range Indicator. The ATR indicator can be used to give you a gauge of the range of the market. Normally, it is set as 14 and depending on the time frame you are in. Usually the higher you see this indicator moves, the more volatile is the market and vise versa.

Forex Indicator No.3: ADX Indicator. It can also tell whether the market is trending or ranging. Whenever the market is trending, you can see this indicator pointing up and moving above the 25 level. If the market is ranging, this indicator will usually stay below the 25 level.

These three indicator are most commonly used by traders to measure market condition as well as market volatility. By knowing the volatility of the market we need to find out whether the market is trending or ranging so that we can decide on the type of trading strategy to use.

Weekly Forex Market Price Action Outlook – August 4th – 8th, 2014

EURUSD – Euro/dollar downtrend intact

On Friday, the EURUSD found some buying interest finally, and made a run back up to the 8 day EMA dynamic resistance level. The trend is still down in this market, and our recent bearish bias has not changed; we are still looking to sell on a rally back to resistance. If the market moves back up to the 1.3480 – 1.3510 area, we will watch closely for a price action sell signal to trade back in-line with the downtrend.



GBPUSD – Sterling/dollar sell-off accelerates

The GBPUSD lost a lot of ground last week as bearish momentum took hold of the market. Our near-term bias on this market is now bearish and we will watch any rallies to resistance for sell signals. There’s some resistance coming in up near 1.7000, if the market retraces back to there we can watch for a sell signal. There’s also a key support / price action event area coming in down near 1.6690, and if the market falls down to that level in the coming days, we can watch for a price action buy signal as well, as that would be a high-probability area to look for buying opportunities.



AUDUSD – Aussie/dollar still within confines of trading range

The AUDUSD did break down through support near 0.9320 last week, but it’s still confined within a large trading range between 0.9450 resistance and key support level down near 0.9200. If price continues falling and tests that key 0.9200 support, we will watch for price action buying opportunities from there, to trade back up toward the range resistance.



NZDUSD – Kiwi/dollar showing signs of firming up near support

The NZDUSD found some buyers toward the end of last week as the market pushed slightly higher on Thursday and Friday. Price has fallen down close to the key support near 0.8400, but isn’t quite there yet. We could wait for a buy signal from that key 0.8400 support level or wait for the market to retrace higher and watch for a price action sell signal from resistance to trade back in-line with this recent bearish momentum.



S&P 500 – Bearish momentum pounds U.S. stocks

The S&P 500 has fallen significantly lower recently, following multiple failed attempts for the market to move higher. We can look to play both sides of the market at this point; watching for price action buy signals from key support and then looking for price action sell signals if the market pushes back up to key resistance levels.