TC + Market Conditions

TC and different market conditions:

My TradeCharting algorithm is a system designed to capture strong momentum moves during trending markets. Markets do not trend every day of the year though. My TC system tends to produce more frequent and more reliable signals during trending market conditions. Fewer signals, if any, are produced when the markets are not trending.

These are some of the great benefits of my TradeCharting algorithm:

  • TC helps to find trend trades once there is strong momentum behind a move within a currency pair.
  • TC also keeps me out of potentially losing trend trades when there is not enough momentum to give sufficient follow through on a move.

My experience has led me to conclude that there are, essentially, two major types of FX market conditions:

  1. Trending markets and
  2. Range bound / choppy / bouncing markets.

1. Trending markets:

These are the preferred markets for using my trend trading TC system. That is obvious I hope! TradeCharting works well when the markets are trending on most time frames, especially the 4 hr time frame that I trade from.

Trending markets tend to produce more frequent and more reliable TC signals and trends that tend to last for much longer. The following chart gives an example of a TradeCharting signal from the EUR/USD pair during December 2012 off 4 hr charts. This was a period of trending markets and this signal delivered over 300 pips:

2012EU

2. Range bound markets:

Range bound markets are generally characterised by choppy or whipsawing trading for Forex off 4hr time frame charts. I have observed though that trading from shorter time frame 30 min charts during the late London and US session though can be more successful.

My experience has shown me that there are two main ways to best trade choppy, range bound or bouncing Forex markets:
  1. One way is trade from the bounces at pre-prescribed levels. This type of trading does not suit my trading style or time zone that I trade from.
  2. The other way is to trend trade using TradeCharting BUT from smaller time frame charts, such as the 30 min charts. I do tend to find that trend trades off 30 min charts, during choppy periods, generally present more often during the late London or US trading session though. I live in the Asian trading zone so, sadly, I generally miss these opportunities. So, whilst I do find that the lack of 4 hr chart trend trades during choppy markets is frustrating, at least TC keeps me from losing money, more often than not, during these periods. Preservation of capital is very important in trading!I have provided an example below to illustrate this exact point with ranging markets. This EUR/USD chart is from April 24th 2012. This was a period of choppy markets with few lasting trends on the 4 hr time frames. I have labelled the zone of the Asian session and you can see that there was little movement during that time frame. There were short term trend trades to be had though that kicked in after the London open and these are labelled. Sadly, that is a time when I’m rather busy down here!

Assessing market Conditions:

I believe that I have ‘stumbled upon’ a system for detecting the onset of certain market conditions. That is, I have a system that I can use to assess whether trading conditions might be heading towards either trending or choppy conditions. This has been a great addition to my overall trading system. This assessment regime also involves looking at the USD and Euro dollar indices and using the Ichimoku Cloud Indicator. This is explained in more detail in later sections on this blog.