Traders try to profit from changes in prices: Buy low ans sell high, or sell short high and c over low.Even a quicq look at a chart reveals that markets spend most of their time in trading ranges.



They spend less time in trends. A trend exist when prices keep rising or falling over time. In an uptrend, each rally reaches a higher high than the preceding rally and each decline stops at a higher level than the preceding decline. In a downtrand, each decline falls to a lower low than preceding decline and each rally stops at lower level than the preceding rally.In a trading range, most rallies stop at about the same high and declines peter out at about same low.

Trading in trends and trading ranges calls for diferent tactics. When you go long in an uptrend or sell short in a downtrend, you have to give that trend time to develop and you have to stay with this trend as long as he continues.When you trade in a trading range, you have to act fast and close out your position at the slightest sign of a reversal. Another difference in trading tactics between trends and trading ranges is the handling of strength and weakness. You have to follow strength during trends - buy in uptrends and sell short in downtrends. When prices are in a trading range, you have to do the opposite - buy weakness and sell strength.

Trend Psychology. An uptrend emerges when bulls are stronger than bears and their buying forces prices up. If bears manage to push prices down, bulls return in force, break the decline, and force price to a new high. Downtrends occur when bears are stronger and their selling pushes market down. Wen flurry of buying lifts prices, bears sell short into that rally, stop it, and send prices to new lows. When bulls and bears are equally strong or weak, prices stay in a trading range. When bulls manage to push prices up, bears sell short and prices fall. Prices in trading ranges go nowhere.

NEXT Trendline