Technical Analysis Explained: Market States or Types of Trading

The market moves in definite steps , and these steps can be isolated and studied , one at a time . Furthermore , these steps progess in a sequence , and that sequence can be defined and analyzed , item by item.

If we understand the "type of trading" that is manifested by the market at a particular moment, we can figure out techniques and tools that work the best for that particular kind of market activity . Also, You'll also find, if we know which type of trading came before , which is here now , and which is likely to follow , we'll have an advatnage over other traders. We can always choose the best tools , and we'll be prepared for the future . When it comes to trading, that is a big part of the battle.

Hard earned experience and a quality technical analysis explained course has shown that our definitions of types of trading need to be very clear, or we lose the value of our analysis. We need definitions that apply to all markets , at any time . Our definitions must be robust and simple .

Within the technical analysis explained series types of trading will be discussed in future articles, and we will find that simple definitions combined with careful observations can lead us towards success.

The starting point will be an overview that is simple, so you'll be able to get the big picture. Then we will start with our discussion of the market in a trend run . After we make our observation about trends , we will see how the Drummond Geometry tools combined with time period analysis will help us figure out where the trend will come from , and where the end will be. We will also see how our monitoring tools , both the envelope and 1-1 zones, fit in with our growing collection of theory and practical observations . And finally we will suggest some trading rules that may help you as your own trading plan is developed.

Let's get going....

Two major divisions will be used to divide the activity of the market: trending markets and markets in congestion . We can divide up congestion further into congestion entrance, congestion action, and congestion exit . We add trend reversal as a final market condition , bringing us to a total of five trading types .

The definition of what a trend happens to be is attached irrevocably to the position of the close of the bar also known as the Pldot . No other element is part of the trend definition, although for various trends there is much to say about their characteristics . A trend is always defined by this rule : If 3 closes occur on the same side of the Pldot, the market is in a trend . This rule is known as the three close, and there is no kind of trend that can exist without this rule . This will NOT happen. Next in our series on Technical Analysis Explained Congestion Entrance will be the topic .

Author:
Ted Hearne is a Forex and bond trader who has written extensively about trading and has co-authored a "technical analysis explained" course called "Drummond Geometry". His biography and further information about his work can be found at the www.drummondgeometry.com website.