The danger of consolidated movements in the market
It is almost impossible to create a perfectly complete model of the financial market. The lucky person who could do it would have been swimming in the sea of profits long ago. What we need is a model close to reality, which will limit our losses and increase our profits many times over.
The market comes in two basic states
Trend or trend - this state is characterized by a clear, directional movement of the market in a certain direction.
Consolidation - this state is characterized by the absence of a clear directional movement of the market, at such moments it is practically not moving and makes only small movements.
Traders with experience believe that most of the time the market is in a state of consolidation (about 80%), ie, most of its part of the market lives almost without movement. And the rest 20%, the market is in a certain direction and has a certain trend. And, despite such a small number of price fluctuations (only 20%), the "experienced" traders still recommend to trade on trends. A very strange fact, don't you think?
It's all about money management and risk management. If you look at any chart, where the market has a clear trend, you will find that in most cases the markets move smoothly and without a break. It follows that there is an opportunity to start trading with a small amount of money. stop lossbecause the trend clearly dictates the direction of price movements.
But trading in consolidation zones is not considered by experienced traders, apparently, due to the high risks associated with very small fluctuations in currencies, which can not bring big profit and, accordingly, large losses. Also, using this approach to trade, it is necessary to make a very large number of deals, which requires constant observation of the market, as well as large spreads and other commissions.
In principle they are right, why catch tits (consolidation movements), if you can catch a beautiful crane (trend).
Another disadvantage of consolidation trading - traders are always at risk of losing all their earnings in consolidation trading in one wrong trade, falling against the trend.
Conclusion: always trade on the trend and catch the beautiful cranes, we do not need tits.
Yeah, you have to be able to catch a trend, too. By the time you realize it was a trend, it's already over. I guess you have to catch global news that affects the formation of the trend.