Trends, ranges and transitions

The same action produces opposite results in the two conditions. Buying a break of the high is how trends are joined and how ranges take money from participants who assumed a trend.

Most losing runs come from applying one condition's method during the other, rather than from poor execution. Classifying the condition before deciding the approach removes a whole category of loss.

Markets range more often than they trend. A method that requires a trend spends most of its time waiting, which is a feature rather than a fault.

A range has two properties worth measuring before acting in one: how wide it is, and how cleanly each edge has held.

Width sets whether it is tradable at all. A band narrower than the instrument's ordinary noise, or narrower than the cost of two round trips, offers nothing however well it is read.

Edges tell you where the interest sits. An edge tested three times and rejected sharply each time is defended. One that price has drifted through and back is not an edge so much as an area, and a position taken against it carries a stop with nowhere obvious to sit.

The middle of a range is where positions have the worst reward against risk in either direction, and it is where most impatient entries happen.

The transition between conditions is where most damage occurs, because it is only clear afterwards. A trend that has stopped making progress looks identical to a trend pausing, until one of them resumes.

Two observations narrow it. First, the size of the moves: advances shortening while pullbacks hold their depth means buyers are covering less ground for the same effort. Second, the behaviour at the extremes: a range forming inside the last leg of a trend, with both edges respected, is a market that has stopped making progress.

Neither confirms a reversal. Both remove the case for continuing to size positions as though the trend is intact, which is a different and more useful conclusion than predicting what comes next.

A break that reverses back inside the band is not a neutral event. It means price reached a level where enough opposing interest existed to reject it, and it means participants who entered on the break are now offside.

Those participants have to close, and closing is transacting in the opposite direction to the break. That is why a failed break frequently travels further than the break itself would have.

This is the single most useful reason to wait for a close beyond a level rather than acting on the touch. The touch and the failed break look the same while the candle is forming.