How to tell if a market is ranging or trending

[DionysusToast]

If you are looking for a set of mechanical rules to tell you if the market is entering chop mode or leaving chop mode so that you can alter your trading accordly, then you are going to be dissapointed.

The issue is, as you say - when you enter the chop, your system stops working. When you leave the chop you don't take the trades you should. In the chop you sell tops and buy bottoms - the opposite of what you'd do in a trend (OK pullback seekers, you know what I mean).

A purely mechanical method of recognising this is very close to the holy grail. Sure, ADX will tell you when you are in the chop but so will your trading account balance. Both will do so after the event.

I know a number of people that tried to resolve this riddle and if you can resolve it, you will be very rich indeed.

You should perhaps aim for minimizing the impact of entering at the wrong time. For instance by starting off with a smaller position and adding to it (in steadily decreasing increments) as you are proven right.

 

[meanreversion]

Yep, that's spot on, you can only know AFTER the event what the market was doing, so in a way, no sense in trying to second guess its state. DT also suggests pyramiding, which is a topic infrequently discussed on t2w.

 

[DionysusToast]

You know - when I saw 'meanreversion' had posted, I thought he'd say he'd resolved the issue.

I was ready to pop round to his house for a grail of sugar...

 

[meanreversion]

There was another thread on t2w with two people going at it big-time, insults going back and forth, and then one of them called the other a "Holy Grail hunter". I thought that was awesome, so dismissive. There are probably 4 letter words which are quicker to say, but this is more eloquent.

No grails of sugar at my gaff, I'm afraid, I'm just a cork bobbing on the ocean like everyone else.

 

[montmorencyt2w]

Yep, that's spot on, you can only know AFTER the event what the market was doing, so in a way, no sense in trying to second guess its state. DT also suggests pyramiding, which is a topic infrequently discussed on t2w.

Yes, not enough, although TD (not DT), i.e. Tom Dante has talked about this from time to time; interesting stuff.

I was ready to pop round to his house for a grail of sugar...

Doth his cup runneth over?


For convinced trend-traders (and that's not a put-down...I would love to be a trend-trader), I'd like to ask whether the stock market (FTSE, Dow, Dax, S&P, whatever, they are essentially the same) is coming to the end of its bull trend now or what? (I'm not looking to make any trading decisions based on this; I'm just interested to hear what people say). How will you know when it has done so?

 

[Shakone]

For the OP, I would avoid ADX completely. The lag on that is huge. It is intended to tell you when something is trending, but if you go by standard knowledge, it will only tell you that it is trending when the trend has been going for a long time, and probably due for its end or a significant retracement. I recommend listening to MrGecko, adn going with somehting as simple as higher highs, higher lows etc