Markets Balancing or Trending, Time Frame Participants & Trading Strategy
To Shadow Traders,
Per James Dalton, markets are either balancing or trending. From a long term standpoint markets are trending approximately 15% of the time and balancing approximately 85% of the time.
Balancing markets are rotational and trending markets are directional. When markets are balancing, value leads price. Price is being pulled back to value, which reflects that there is general agreement in the markets on value. When markets are trending, price leads value. Price is pulling value with it, which reflects that there is not agreement in the markets on value and that the markets are searching for value.
Market balancing and trending occurs in all time frames (on monthly, weekly, daily, and intraday charts). Besides keeping track of all the go/no go reference levels, what makes trading so challenging, is handling the interaction of all the time frame participants (long term, intermediate term, short term, and day).
Per James Dalton, balance areas, trading ranges, brackets, congestion areas, and consolidation ranges are synonymous terms. In an effort to try and understand time frame interaction, I look at trading ranges on monthly, weekly, daily, or intraday charts as contained areas that include trends plus balance areas. Therefore:
1) Long term trends on monthly charts terminate in balance areas on a monthly charts and trading ranges on weekly charts. Trading ranges on weekly charts contain multi week candle balance areas plus multi week candle trends.To break out of trading ranges on a weekly charts, the addition of long term time frame investors is needed. Conversely, if the long term time frame investors are not present, the markets will be contained by trading ranges on weekly charts.
2) Intermediate term trends on weekly charts terminate in balance areas on weekly charts and trading ranges on daily charts. Trading ranges on daily charts contain multi day candle balance areas plus multi day candle trends.To break out of trading ranges on daily charts, the addition of intermediate and/or long term time frame traders/investors is needed. Conversely, if the intermediate and/or long term time frame traders/investors are not present, the markets will be contained by trading ranges on daily charts.
3) Short term trends on daily charts terminate in balance areas on daily charts and trading ranges on 30 minute charts. Prior day trading ranges on intraday charts contain multi 30 minute candle balance areas plus multi 30 minute candle trends.To break out of prior day trading ranges, the addition of any of the longer term time frame participants is needed. Conversely, if the longer term time frame participants are not present, then the markets will be contained by prior day trading ranges.
Markets that break out of trading ranges/balance areas have a tendency to go to visual references that can be seen on daily, weekly, monthly charts. As mentioned in a prior post, James uses a top/down approach. He uses the monthly, weekly, and daily charts to find important resistance and support go/no go levels, and determine whether the monthly, weekly, and daily charts are trending up or down or balancing.
Trading Strategies change depending on whether the markets are trending or balancing.
1) If markets are trending up, buy breaks and take profits on rallies, and do not short.
2) If markets are trending down, short rallies and take profits on breaks, and do not go long.
3) If markets are balancing, buy the bottom of balance area and take profits at top of balance
area, and short the top of balance area and take profits at the bottom of the balance area
As most of you know, determining the appropriate trading strategy is straight forward when monthly, weekly, and daily charts are either all trending up or all trending down. But as mentioned above the markets are usually only trending 15% of the time. The other 85% of the time, however, markets are going to be balancing on any or all of the monthly, weekly, or daily charts. As a result, markets can be balancing on the monthly charts and trending on weekly and/or daily charts.
So when setting your trading strategy, it is important to know what time frame you are trading, and to trade with longer term trends. Remembering, that that longer time frames/participants trump shorter time frames/participants.
To Shadow Traders,
Per James Dalton, markets are either balancing or trending. From a long term standpoint markets are trending approximately 15% of the time and balancing approximately 85% of the time.
Balancing markets are rotational and trending markets are directional. When markets are balancing, value leads price. Price is being pulled back to value, which reflects that there is general agreement in the markets on value. When markets are trending, price leads value. Price is pulling value with it, which reflects that there is not agreement in the markets on value and that the markets are searching for value.
Market balancing and trending occurs in all time frames (on monthly, weekly, daily, and intraday charts). Besides keeping track of all the go/no go reference levels, what makes trading so challenging, is handling the interaction of all the time frame participants (long term, intermediate term, short term, and day).
Per James Dalton, balance areas, trading ranges, brackets, congestion areas, and consolidation ranges are synonymous terms. In an effort to try and understand time frame interaction, I look at trading ranges on monthly, weekly, daily, or intraday charts as contained areas that include trends plus balance areas. Therefore:
1) Long term trends on monthly charts terminate in balance areas on a monthly charts and trading ranges on weekly charts. Trading ranges on weekly charts contain multi week candle balance areas plus multi week candle trends.To break out of trading ranges on a weekly charts, the addition of long term time frame investors is needed. Conversely, if the long term time frame investors are not present, the markets will be contained by trading ranges on weekly charts.
2) Intermediate term trends on weekly charts terminate in balance areas on weekly charts and trading ranges on daily charts. Trading ranges on daily charts contain multi day candle balance areas plus multi day candle trends.To break out of trading ranges on daily charts, the addition of intermediate and/or long term time frame traders/investors is needed. Conversely, if the intermediate and/or long term time frame traders/investors are not present, the markets will be contained by trading ranges on daily charts.
3) Short term trends on daily charts terminate in balance areas on daily charts and trading ranges on 30 minute charts. Prior day trading ranges on intraday charts contain multi 30 minute candle balance areas plus multi 30 minute candle trends.To break out of prior day trading ranges, the addition of any of the longer term time frame participants is needed. Conversely, if the longer term time frame participants are not present, then the markets will be contained by prior day trading ranges.
Markets that break out of trading ranges/balance areas have a tendency to go to visual references that can be seen on daily, weekly, monthly charts. As mentioned in a prior post, James uses a top/down approach. He uses the monthly, weekly, and daily charts to find important resistance and support go/no go levels, and determine whether the monthly, weekly, and daily charts are trending up or down or balancing.
Trading Strategies change depending on whether the markets are trending or balancing.
1) If markets are trending up, buy breaks and take profits on rallies, and do not short.
2) If markets are trending down, short rallies and take profits on breaks, and do not go long.
3) If markets are balancing, buy the bottom of balance area and take profits at top of balance
area, and short the top of balance area and take profits at the bottom of the balance area
As most of you know, determining the appropriate trading strategy is straight forward when monthly, weekly, and daily charts are either all trending up or all trending down. But as mentioned above the markets are usually only trending 15% of the time. The other 85% of the time, however, markets are going to be balancing on any or all of the monthly, weekly, or daily charts. As a result, markets can be balancing on the monthly charts and trending on weekly and/or daily charts.
So when setting your trading strategy, it is important to know what time frame you are trading, and to trade with longer term trends. Remembering, that that longer time frames/participants trump shorter time frames/participants.
