Know Your Trading Environment

When two people go to war, the foolish man always rushes blindly into battle without a plan, much like a starving man at his favourite buffet spot.

The wise man, on the other hand, will always get a situation report first to know the surrounding conditions that could affect how the battle plays out.

 

Like in warfare, we must also get a situation report on the trading environment. This means we need to know what kind of market environment we are actually in.

 

Some forex traders cry saying that their system sucks.

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Sometimes the system does in fact…suck... WE NOT GONN LIEE

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Other times, the system is potentially profitable, but it is being utilized in the wrong trading environment.

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Seasoned forex traders try to figure out the appropriate strategy for the current market environment they are trading in.

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Is it time to bust out those Fibs and look for retracements? Or are ranges holding?

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Just as the coach comes up with different plays for particular situations or opponents, you should also be able to decide which strategy to use depending on the trading environment.

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By knowing what market environment we are trading in, we can choose a trend-based strategy in a trending market or a range-bound strategy in a ranging market.

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Are you worried about not getting to use your beastly range-bound strategy? How about your Bring-Home-Da-Bacon trend-based system?

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Have no fear!

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The forex market provides many trending and ranging opportunities across different time frames wherein these strategies can be implemented.

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By knowing which strategies are appropriate, you will find it easier to figure out which indicators to pull out from your forex toolbox.

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For instance, Fibs and trend lines are useful in trending markets while pivot points, support and resistance levels are helpful when the market is ranging.

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Before spotting those opportunities, you have to be able to determine the trading environment.

The state of the market can be classified into three scenarios:

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• Trending up

• Trending down

• Ranging