If you can identify a trending market, it will be easy for you to trade it, if it is a bullish market, you will look for a buying opportunity, because you have to trade with the trend, and if the market is bearish, you have to look for a selling opportunity.

But the question is what is the right time to enter a trending market?

Trending markets are characterized by two important moves, the first move is called, the impulsive move, and the second one is called the retracement move.

See the example below to understand what i’m talking about.

As you can see, the market is making higher highs and higher lows which indicates a bullish market, if you see this market you will think of buying. But as you can see the market is making two different moves, the first move is an impulsive move, and the second one is a pullback or a retracement move. (corrective move).

Professional traders understand how trending markets move; they always buy at the beginning of an impulsive move and take profits at the end of it.

This is the reason why the market makes an impulsive move in the direction of the trend and retraces before it makes another impulsive move.

If you are aware of how trending markets move, you will know that the best place to buy is at the beginning of an impulsive move, traders who buy an uptrend market at the beginning of a retracement move, they get caught by professional traders, and they don’t understand why the market hit their stop loss before moving in the predicted direction. See another example of a bearish trend.

The illustration above shows a downtrend market, as you can see the best trading decision is to sell the market at the beginning of an impulsive move.

If you try to sell in the retracement move, you will be trapped by professional traders, and you will lose your trade.

Now we know how to identify downtrends and uptrends, and how to differentiate between an impulsive move, and a retracement move. This is very important for you as a price action trader to know.

BUT the most important question is how to identify the beginning of the impulsive move to enter the market in the right time with professional traders, and avoid being trapped by the retracement move?

To predict the beginning of the impulsive move in a trending market, you have to master drawing support and resistance levels.

So, what are support and resistance levels and how to draw them on our charts?

Support and Resistance Levels

Support and resistance are proven areas where buyers and sellers find some of equilibrium, they are major turning points in the market.

Support and resistance levels are formed when price reverses and change direction, and price will often respect these support and resistance levels, in other words, they tend to contain price movement until of course price breaks through them.

In trending markets, support and resistance are formed from swing points. in an uptrend the previous swing point acts as a support level, and in a downtrend the old swing point acts as a resistance level.

See the example below to learn more:

The illustration above shows how the previous swing point acts as a support level after the breakout.

When the market makes the retracement move it respects the previous swing point (support level) which will represent the beginning of another impulsive move.

As you can see, when the market tests the previous swing point (support level) it goes up again.

By drawing a support level in an uptrend market, we can predict when the next impulsive move will take place.

Let’s see another example of a downtrend market.

The illustration above shows us how the market respects resistance levels, when price approach the previous swing point, (resistance level).

The market makes an impulsive move. If you understand how price action act in a trending market, you will predict with high accuracy when the next impulsive move will begin.

Another way to catch the beginning of an impulsive move is by drawing trend lines.

This is another technical skill that you have to learn if you want to identify key linear support and resistance level.

Let me explain you first what do trend lines mean?

Quite often when the market is on the move making new swing highs and lows, price will tend to respect a linear level which is identified as a trend line.

Bullish markets will tend to create a linear support level, and bearish markets will form a linear resistance level.

How To Draw Trend Lines?

To draw a quality trend line, you will need to find at least 2 minimum swing points, and simply connect them with each other. The levels must be clear, don’t try to force a trend line.

Don’t use smaller time frame to draw trend lines, use always the 4H and the daily time frames to find obvious trend lines.

We will try to focus right now on how to draw them in a trending markets, our purpose is to identify the beginning of impulsive moves in a trending market.

In the next chapter, i will explain you in detail how to trade trend lines in combination with our price action trading setups.

See an example of how to draw trend lines in a downtrend market.

As you can see the market respects the trend line, and when price approach it, the market reverse and continue in the same direction.

When the market moves this way, trend lines help us to anticipate the next impulsive move with the direction of the market.

Look at another example of an uptrend market.

As you can see the market respects the trend line, and by drawing it the right way, we can easily predict the next movement upward.

This is all what we can say about trending markets, i think it’s clear and simple, now what i want you to do is to open your charts and try to find trending markets.

Find previous swing points (support and resistance), and try to find trend lines as well.

This exercise will help you understand how trending markets move. And how to predict high probability entries in the market.

The Ranging Market

Ranging markets are pretty straight forward, they are often called sideways markets, because their neutral nature makes them appear to drift to the right, horizontally.

When the market makes a series of higher highs and higher lows, we can say that the market is trending up.

But when it stops making these consecutive peaks, we say that the market is ranging.

A ranging market moves in a horizontal form, where buyers and sellers just keep knocking price back and forth between the support and the resistance level.

See the example below:

The chart above shows a ranging market, as you can see, the price is bouncing between horizontal support and resistance level.

The difference between trending markets and ranging markets is that trending markets tend to move by forming a pattern of higher high and higher lows in case of an uptrend, and higher low and lower low in case of a downtrend.

But ranging markets tend to move horizontally between key support and resistance levels.

Your understanding of the difference between the both markets will help you better use the right price action strategies in the right market conditions.

Trading ranging markets is completely different from trading trending markets, because when the market is ranging, it creates equilibrium, buyers are equal to sellers, and there is no one in control.

This will generally continue until the range structures broke out , and a trending condition start to organize.

The best buying and selling opportunities occur at key support and resistance levels.

There are three ways to trade ranging markets, i’m not going to go into details, because what i want you to get here is the skill to look at your charts and decide whether the market is trending or ranging.

If you can’t differentiate between ranging markets and trending markets, you will not know how to use these price action strategies.

The first way to trade ranging markets is by waiting for price to approach support or resistance level then you can buy at key support level and sell at key resistance level.

See the example below:

As you can see, the market is moving horizontally, in this case the best buying opportunities occur at the support level.

And the best selling opportunities occur at the resistance level.

The second way of trading ranging markets is by waiting for the breakout from either the support level or the resistance level.

When the market is ranging, no one knows what is going to happen, we don’t know who is going to be in control of the market, this is why you have to pay attention to the boundaries, but when one of the players decide to take control of the market, we will see a breakout of the support or the resistance level.

The breakout means that the ranging period is over, and the beginning of a new trend will take place…

See the example below:

As you can see the market was trading between support and resistance levels, and suddenly the price broke out of the resistance level, this indicates that the beginning of a trend is likely to happen.

So the best way to enter is after the breakout.

It’s important to remember that range boundaries are often overshot, giving the illusion a breakout is occurring, this can be very deceptive, and it does trap a lot of traders who positioned into the breakout.

The third way to trade ranging markets is to wait for a pullback after the breakout of the support or the resistance level.

The pullback is another chance to join the trend for traders who didn’t enter in the breakout.

See the example below:

As you can see in the chart above, the market was ranging, price breaks out of the resistance level to indicate the end of the ranging period, and the beginning of a new trend.

After the breakout, the market comes back to retest the resistance level that becomes support before it goes up.

The pullback is your second chance to join the buyers if you miss the breakout.

But Pullbacks don’t always occur after every breakout, when it occurs, it represents a great opportunity with a good risk to reward ratio.

What you have to remember is that a ranging market moves horizontally between the support and the resistance level.

These are the key levels that you have to focus on. The breakout of the support or the resistance level indicates that the ranging period is over, so you have to make sure that the breakout is real to join the
new trend safely.

If you miss the breakout, wait for the pullback. when it occurs, don’t hesitate to enter the market.

When you are trading ranging markets, always make sure that the market is worth trading, if you feel like you can’t identify the boundaries (support and resistance). this is a clear indication of a choppy market.

In Forex, choppy markets are those which have no clear directions, when you open your chart, and you find a lot of noise, you can’t even decide if the market is ranging, or trending.

You have to know that you are watching a choppy market. This type of markets can make you feel very emotional and doubt your trading strategies as it starts to drop in performance.

The best way to determine if a market is choppy is just by zooming out on the daily chart and taking in the bigger picture.

After some training, screen time and experience, you will easily be able to identify if a market is ranging or it is a choppy market.

Here is a good example of a choppy chart that is not worth trading.

Notice in the chart above, the price action in the highlighted area is very choppy, and it is moving sideways in a very small tight range. This is a sign of a choppy market that you should stay away from.

If a market is choppy, in my opinion, it is not worth trading, if you try to trade it, you will give back your profits shortly after big winners, because markets often consolidate after making big moves.

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