You’re sure to find a bit of trouble if your entire strategy is based on a single market condition. There are market conditions that repeat themselves within the world of finance. An effective strategy takes into account the common variables that the markets will express. Adjusting your strategy to the conditions that you’re faced with is smart. You just want to do so within the framework of your own methods.
Here’s a better look at the variables to adjust your trading style to:
Market Shifts and Institutional Money
The major trends of the financial market are dictated by institutional money. This type of money comes from agencies, which are teams of financial professionals that work in or with Wall Street firms. Your necessary adjustments are based on how these institutions are investing their own money. You’re sure to experience major market shifts from the number of money institutions spend. Here are two common market conditions of Wall Street funding:
A range happens when prices are constricted and reserved solely for movements within a given spectrum. Trending markets are tough. In them, the profit margin is smaller, and the precise time that prices leave the range is unpredictable. Watch for institutions to wait for the very last moment.
Prices that go in one up or down direction are easier to profit from. These directional-price moves will present with a strong objective. The price levels will move—over the span of a week before settling. Simply be aware of the forming trend but ride it in short spurts.
Catching the Anticipated Shift
Range and direction-bound trends are tricky to capture when market shifts are tossed into the equation. Market shifts happen when larger investors are taking new positions. A directional trend, when it changes rapidly, becomes a ranging trend and vice versa. The point where that change occurs, however, is unsafe to trade.
Accounting for the Basic Market Conditions
There are three conditions to assess in a live market. The first is an up or down direction that runs for about three days to a week. The second condition comes from prices that bounce up and down within a price channel. The last condition to consider is the change between the two-trending markets.