I get asked about day trading basics what exactly is a trending market. This is a perfect example of a trending market right here you’ll see a big area. And this is kind of a consolidation area. This is very stagnant.
Obviously, it’s not moving anywhere. It’s flat. This is where market is in indecision. The buyers and the sellers don’t really know if they should take the market to go up. If they should take the market to go down, eventually it wins to go up going long.
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The market is here. It’s in a bullish market. This is a very typical trend up. You see it goes straight up and it’s a pretty strong market as well.
So the way it trends usually work is that they have a run and then a retracement, a run, a rich, free, smart run and a retracement. So a typical trending ding market up is right here. You go up and you retrace down your hi.
Here is higher than the high here. This is a higher high and your low here is low is higher than the low here. That is called a lower high.
That means it’s moving up. And here it continues. It’s a higher high and a higher low. Higher high. And now we’re starting to see a little bit of a deeper retracement. Therefore, if you continue on, you’ll notice that the market goes back into a consolidation area, an area of indecision. Excuse me.
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So this is again, an area where the buyers and the sellers are sitting and one are figuring out where they want to take the market. In the meantime, I’m going to explain to you.
This initial run. This area right here, the first retracement. This is usually the best place to enter the market. This is the most possible highest probability that the market will continue going further after it hits the second pivot, which is right here.
I start to back off because at this point there’s a lot of divergence. And how high can a market really go and how low can the market go at the same time? So there’s always, always going to be a consolidation area.
Those consolidation areas could take you into a much deeper retracement since I am a day trader. My risk management is very small and a deep retracement will stop me out. So I like to only focus on the very first ones unless there is a lot of confirmation here, which would mean that this point would have been higher than this point.
This is called divergence in price because say this is higher here and this is lower here anyhow. Once you get to this particular area, this is the end of a trend.
Here we have the beginning of a trend. The body of the trend and the end of a trend.
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