TC + Market Conditions

February 19, 2013

TC and different market conditions.

The Trade Charting algorithm is a system designed to capture strong momentum moves during trending markets. Markets do not trend every day of the year though. TC tends to produce more frequent and more reliable signals during trending market conditions and fewer signals, if any, are produced when the markets are not trending.

These are some of the great benefits of my Trade Charting algorithm:

  • TC helps to find trend trades once there is strong momentum behind a move within a currency pair.
  • TC also keeps me out of potentially losing trend trades when there is not enough momentum to give sufficient follow through on a move.

My experience has led me to conclude that there are, essentially, two major types of FX market conditions:

  1. Trending markets and
  2. Range bound / choppy markets.

 

1. Trending markets:

These are the preferred markets for using the trend trading TC system. That is obvious I hope! Trade Charting works well when the markets are trending on a greater number of time frames.

Trending markets tend to produce more frequent and more reliable TC signals and trends that tend to last for much longer. The following chart gives an example of a Trade Charting signal from the EUR/USD pair during January 2018. This was a period of trending markets when the FX Indices were aligned for ‘risk on’. During this time there was a great trend line breakout signal on the EUR/USD and there were great TC signals along the way off both the 15 minute and 5 minute charts:

 

EUR/USD: a great 4hr chart trend line breakout:

 

EUR/USD: a great 15 min TC signal for 150 pips and 2.5 R:

 

EUR/USD: a great 15 min TC signal for 150 pips but 10 R:

 

2. Range bound markets:

Range bound markets are generally characterised by choppy or whipsawing trading for Forex off 4hr time frame charts. During such periods I have observed that trading from shorter time frame 15′ or 30′ charts during the late London and US session though can be more successful.

Experience has shown me that there are two main ways to best trade choppy, range bound or bouncing Forex markets:
    1. One way is trade from the bounces at pre-prescribed levels. This type of trading does not suit my trading style or time zone that I trade from.
    2. The other way is to trend trade using Trade Charting BUT from shorter time frame charts, such as the 5′, 15′ or 30′ charts. I do tend to find that trend trades off 15 min charts, during choppy periods, generally present more often during the late London or US trading session though. I live in the Asian trading zone so, sadly, I generally miss these opportunities. So, whilst I do find that the lack of 4 hr chart trend trades during choppy markets is frustrating, at least TC keeps me from losing money, more often than not, during these periods. Preservation of capital is very important in trading!I have provided an example below to illustrate this exact point with ranging markets. This Gold chart below is from March 2018. This was a period when Gold had been range-bound and consolidating within a symmetrical triangle pattern but eventually presented with a low-risk trend trade TC signal set up off that could be captured off the 15 min chart: 

Gold 4hr: range bound:

 

Gold 4hr: breakout on 21/03/18:

 

Gold 15 min: two great TC signal triggered on 21/03/18!

 

Assessing market Conditions:

TC is an effective system that can be used to assess whether trading conditions might be heading towards either trending or choppy conditions. This has been a great addition to my overall trading system. This assessment regime also involves looking at the USD and Euro dollar indices and using the Ichimoku Cloud Indicator. The application of the Ichimoku Cloud is explained in more detail in later sections on this blog.

(Last edit: 25/02/19)