When day trading, it's important to know and understand the market environment. Here we explore trending markets and range-bound markets, and explain what they are and how they work.
What is a trending market?
A trending market is a situation where the price of an asset, such as a futures instrument, is steadily moving in a specific direction over a period of time.
This direction can be either up or down.
For example, let's say you're interested in a futures trading company's stock. If the futures price has been steadily going up over the past few months or years, it's said to be in an 'uptrend'.
That means that the futures instrument is generally considered to be a good investment, and people who own it are likely to make money.
On the other hand, if the stock price has been steadily going down, it's said to be in a 'downtrend'.
In that case, the stock is generally considered to be a poor investment and people who own it are likely to lose money, unless you are a day trader who can take advantage of trading both uptrends and downtrends for a potential profit.
Trending markets can last for a long time, and they can be a good opportunity for people who are skilled at spotting and following trends.
However, it's important to remember that no market trend lasts forever and it's always a good idea to manage risk, be cautious and do your research before making any investment decisions.
What is a range-bound market?
A range-bound market is a financial market in which the price of an asset, such as a futures instrument, is confined within a specific range and has difficulty breaking out of that range.
This can result in a situation where the price of the asset oscillates within the range, moving back and forth between the upper and lower bounds.
Imagine you have a bouncy ball that you keep tossing up and down. The ball always bounces back within a certain range and it never seems to escape that range no matter how hard you throw it.
That's a bit like what happens in a range-bound market: the price of the asset keeps 'bouncing' within a specific range, but it has a hard time breaking out of that range and moving significantly higher or lower.
Range-bound markets can be challenging for traders, as it can be difficult to predict in which direction the price of the asset will move.
However, some traders may try to take advantage of the oscillating price movements by buying low and selling high within the range.
Don't forget to apply good risk management strategies at all times when futures trading.
Make sure you are knowledgeable on how to identify a Trend Retracement or a Market Reversal.
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