Markets, Strategies & Time Frames

The first step in developing a trading strategy is to select the market action and
corresponding strategy type that you want to trade. As I’ve discussed, selecting a
strategy type is a very important part of strategy trading and you should take your time in evaluating the alternatives. Many factors will influence your decision, but your own personality will ultimately direct you to the strategy that is right for you. In making the choice, the most important thing to remember is that it is yours to make alone. Read everything I have to share with you about different types of strategies, but then decide for yourself. Only you really know what type of person you are and therefore what type of trading is best for you.
This chapter will help you to understand some of the conditions that can occur in
the market, and the strategy type that complements those conditions. Once you
are familiar with the basic strategy types, you will be able to select the one you
want to use.

Three Market Types


Generally, there are three types of markets. The three market types, or phases, arederived from three distinct chart patterns that appear when there is a shift in
market action. The phases are trending, volatile, and directionless, and each can be characterized by specific price activity. Take a look at the following charts and
familiarize yourself with each different market pattern.