Trending and Non-Trending Markets
Traders start each day in anticipation of making quality trades. It's up to the market to provide the opportunities for a trader to participate; and it doesn't always reciprocate with quality opportunities for a trader to pick out high probability trades.
Trending markets, or markets that are moving in one distinct direction are what every trader likes to see on his or her chart. These markets provide ample opportunity for a trader to showcase his skills and enter high probability trades with potential for profit. Depending upon which article or book you read, markets trend between 30% and 40% of the time. These are times when the trader is most active participating in the market move.
There are other times, however, that the market does not trend. During these periods the market is usually moving sideways in serpentine patterns that invite the trader to try his or her luck. It is seldom a great idea, especially for the novice trader, to initiate trades in consolidating markets. They can be treacherous and very difficult to trade. Consolidating markets, to use a fishing metaphor, is like sitting in a boat when the fish aren't biting. It can be frustrating to watch the bars roll across those screen without any clear opportunity to trade.
I am a scalper, and I nearly always trade with the trend. In fact, I trade with the trend more than 90% of the time. Less than 10% of my trades are counter trend trades. The only counter trend trades I generally take our tick fades generated by the NYSE tick indicator. Most of the great traders that I have had the privilege of trading with are trend traders, too.
Why?
That's an extremely easy question to answer. It's a lot easier to go with the flow than go against the flow. Ask any salmon how fun it must be to swim against the current for several weeks at a time. Its tough work and they get beat up terribly. Counter trend trading is arguably similar to swimming against the current. The majority of the time, the trend may retrace for a few bars and then resume in the direction of the trend. It's a great way to lose money and destroy your confidence. Of course, it's easily avoided. Don't trade against the trend; don't try to swim against the current.
You might be interested to know that markets that are trending downwards move three times quicker than markets trending to the upside. Markets in an upward trend usually do so in a gradual manner as opposed to the more violent and erratic downward movement typified by downtrends. There are a variety of theories why this phenomenon occurs, and I think the most credible theory states that people tend to sell out of fear and are more pragmatic as they accumulate shares. The logical ramification of these phenomena is that more patience is needed when trading in an upward trend, and downward trend trades need a quick and concise buy/sell decisions.
The point of this article is a simple one, and that is the most profitable times to trade are in trending markets. Non-trending markets are difficult to trade and treacherous; they are best avoided, especially by novice traders.
Questions and Answers
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