Trending Trading Markets

I want to show you two different market tendencies that can help you build your trading ideas. The first one is a trending market.

Trending markets are followed by marking the highs and lows that price creates during each run. In a bullish market trend, we would mark the highs, lows, higher highs, and higher lows.

Also keep in mind that equal highs and equal lows matter too. They can show areas where price may be building pressure, slowing down, or getting ready to make its next move.

Look at the example below.

H = High
L = Low
HH = Higher High
LH = Lower High
EL = Equal Low
EH = Equal High

An uptrend consists of highs and lows. What makes it an uptrend is when those highs and lows continue forming above the previous highs and lows. Never assume a trend is going to move clean. To stay on the right side of the market, I like to look for buying opportunities off the last broken highs.

For example, do you see where it says EL next to the green hammer candle? After this candle closes, finding good buying structures on the lower timeframe would be ideal. This does not mean you enter right away. You still need to go through your thinking process and confirm the entry on the lower timeframe. If you do not see the setups you have been studying, then do not trade them.

If you take an entry that looks good to you, but you modified your rules because of the structure of the market, not because of the speed of the market, then documenting that as an experimental trade is important. Most of my personal confusion has come from not keeping my experimental entries separate from my strategy based entries. By experimental, I mean modified or overwritten entry confirmations.

Now look at how the market reacts to the EH after the last HH. When I see this, I start watching to see if the last low will be compromised. If that low breaks and the market does not run, I become very interested in looking for sells off the EH zone that has now held twice.

Keep in mind that just because a market cycles into a range after trending does not mean the trend is over. Since your ideas are coming from a higher timeframe, there is a good chance that some of the ranging markets you see are really accumulation areas for the larger higher timeframe price run.

Here is the move from that zone below.

Can you break down the structure of the downtrend below? The concept is the same.

L = Low
H = High
LL = Lower Low
LH = Lower High
EL = Equal Low
EH = Equal High

If you’re part of the community chat, feel free to drop an image of your markup there. I love seeing what other traders notice on the chart.

What I’m showing in the next image is not the market breakdown I just asked you to do. It is just a tip about trending markets that has helped me over the years.

When your higher timeframe has a steep, strong move, look to see if the pullback breaks the 50% area of the previous move. The purple zone is the 50% area of the white line price run.

Even though we have a ranging market and a fake breakout to the buy side before the 50% area, that could be a trap if the detail is missed. If you do notice it, you still have a fair shot to adjust your trade if you originally took the wrong direction.

Let’s say you noticed the ranging market after the price run trend. Then you see the breakout of that range pushing toward the 50% area of the last strong trend. Your thought might be, “I can catch a few pips up to this 50% area, then trade the sell.” That is a fair thought because some trend shapes give you clean swings to trade both sides.

But this time, the market fakes you out. You notice your buy trade has little chance to win, and your overall sell idea becomes even more favorable. From there, you can start looking for sell entries while being on the right side of the trade idea.

The reason I think this is a huge tip is because once you choose your higher timeframe, you should not keep jumping above that timeframe unless it is part of your trade idea protocol. After strong moves on my highest timeframe, I like to have a 50% level attached to all good volume moves. This protects me from getting ideas from too many timeframes at once.

Your level does not have to be 50% either. You could use a 67% area if that fits how you study price. This same method was used earlier in the engulfing candle example with the yellow line.

Now, if you were ahead of the idea and waited for your overall setup, the double rejection under the 50% area could have been a strong final confirmation for the entry.

As you journal and trade, you’ll build your own library of trend structures that work with the charting style and indicators you use.

Let’s move into ranging markets.

Ranging Trading Markets

Ranging markets usually have two major trading price points. This does not mean price will always stay perfectly between those areas. What you will notice is that the major moves often come from those price points.

Inside most trends, you should be able to find a 50% area where both buyers and sellers see fair value for trying to take control of the market. That is why ranging markets should not be overlooked.

You can get a lot of context by watching how volume moves through the 50% area of a range. That movement can be an early sign of a possible breakout.

Look at the 50% area.

I’ve also adjusted the zones to match the range of prices you should pay attention to when taking trades.

Depending on what you are looking for, using a range of prices instead of one specific price point can give you better context. It helps you understand what you are trading into or away from when price reaches those zones.

Can you see the trending market conditions inside the range more clearly when you compare what the lower timeframe is printing against the higher timeframe?

If you want a complete overview of how to put all this information together, read the Candlestick Bible below. It is a free resource with a boatload of value and can help you better understand how price, structure, and candlesticks work together.