Welcome to Lesson eight. Lesson a the key to forex system development market types. Welcome to Lesson eight. My name is Sam ADA. I'm a global macro Currency Trader and the owner of effects renewed calm. This is the advanced forex course for smart traders.

Van Tharp said it's insane to expect the same system to work well in all market types. Perhaps the biggest mistake that traders make when they build forex trading systems has to do with market types. Traders tend to put blinkers on and use the same approach no matter what the market is doing and find them. But it's very difficult to have a winning trading system that works well. In all condition. Your system might work well in trending markets and perform poorly in sideways markets.

So why trade it in sideways markets? The simple solution is to identify the market type first, and then apply a strategy that works in that market type. Van Tharp, a market wizard. An expert on market types suggests that there are as many as 26 market types. You will see this too as you get more experienced in identifying them. Sometimes it's difficult to work out an exact classification for the market type at all.

But don't let that set you back. Close enough is good enough. For forex trading, we tend to use six primary market types, both normal, volatile, be normal, be volatile, sideways, quiet, and sideways volatile. There are several methods for identifying market types. Van Tharp uses a mechanical market type classification system that applies an algorithm to market direction and volatility. I prefer to use charts when trading forex.

You can see the primary market types here on the weekly chart of USD JPY. We start with sideways normal, we move to both normal both volatile The sideways volatile DNS mobile normal market type again sideways in sideways quiet followed by both normal Can you see how it will be difficult to trade the same way in all these market types, shifting market types trading transitions, like the sea turns from calm to stormy. So, during the markets, one of the tricks to using market types is to know what to expect next, trading is very much about probabilities. And if you know which market types would likely follow next, then it can give you a big edge. Here are the primary market types in indication of what often comes next. So a bowl normal is often followed by a bowl volatile or sideways quiet bowl volatile is often followed by sideways volatile or be volatile, being normal followed by a bit volatile or sideways quiet, be volatile, followed by a be volatile or a sideways volatile sideways quiet followed by a ball or being normal or sideways volatile, sideways volatile is often followed by a ball obey normal or a sideways quiet.

Pr in a bull market you can expect the ball volatile to happen next and then you can be wary and above volatile that it could quickly turn into a be volatile and you can then plan appropriately. position sizing in different market types, traders need to adjust position size and response to the changing market environment. Market types play an important part in your position sizing you may not necessarily need to stop trading a strategy in a market type that it does not work so well in rather you can simply reduce the position size. If you have a strategy that works well in a certain market type you can then trade much bigger sizes when in that market type. An easy to use technique for identifying market types to identify market types in forex is bollinger bands. Depending on the type of trade you're looking to place he knew these tools on weekly or daily charts.

I tend to use the weekly charts to identify the market type, then I stock entries of lower timeframes. The shorter your trading horizon, the lower the timeframe you'll use to identify market types. You want to use either 10 period or 20 period. bollinger bands. Both work but have a different degree of sensitivity. as it rolls bass discretionary trader Don't be afraid to play around with the indicator until it gives you the insight you're after.

When the bollinger bands are expanded slightly, it is a sign of a normally training market type when they are stretched as a sign of a volatile market type. When they're contracted, it is a sign of a quiet market type. If the price is trending in the direction of the upper or lower Bollinger Bands then that will indicate a bull or bear market. If the price has been The two bands with no clear direction the market type is sideways. If you combine these two factors, you can normally identify the market type pretty easily. bollinger bands are very useful market type identification can be improved by using price action.

Price action will allow you to identify Bo volatile or be a volatile market types better than the bollinger bands. And it can also help you to get on a market type transitions early both volatile and be volatile market types can be identified simply by increasingly long candles or bars. The switch from bullish to bearish market type and vice versa can be quite rapid price action can be used to identify the switch as the market type will often change direction when it hits a significant support or resistance level. You can look for candlestick reversals of support and resistance levels or double tops and bottoms for a sign that the market type might be changing. direction. Strategies for different market types.

Vanta believes it is not impossible to build a holy grail system that works no market types, but it is not that difficult to build one that works well in a particular market type. His suggestion is that traders develop a number of non correlated systems that work well in different market types. This is generally a good idea as it will help improve your consistency. Let's take a brief look at each market type in a strategy that you can apply in each one. Bo normal to identify a normal market type look for the price to be training with the upper band and above the mid Bollinger Band generally bow normal market type suit trend following strategies look for a pullback or consolidation phase and a breakout to buy the direction of the trend. Bow volatile he will say long bullish path develop that sometimes cross above the upper Bollinger Band Look for swing trading opportunities in the direction of the trend with tight stops and let profits run.

Be normal to identify being a one market type look for the price to be trending with the lower Bollinger band and below the mid Bollinger Band. As in both normal market types being a more macro type suit trend following strategies, look for a pullback or consolidation phase and breakout to buy in the direction of the trend. Be volatile, be volatile as the opposite of both volatile you will see long bearish bars develop that sometimes cross below the lower band isn't the ball volatile look for swing trading opportunities in the direction of the trend with tight stops and let profits run sideways volatile. In a sideways volatile market type the bands are wide and there is a large sideways price movement sideways volatile market type sort of band trading approach look for prices to get to the edge of the band and fade the move back towards opposite edge of the band sideways quiet and a sideways quiet market type the band's contract in the price forms a tight range.

Many traders find sideways quiet market types difficult, but they can be very lucrative if you're patient enough to wait for the breakout. Alternatively, you could go down to a lower timeframe and apply a band trading approach. Advanced market types. Since the original version of the lesson, we've extended our work with some advanced market type classifications, you can see a link in the PDF version of this listen to the advanced market type classifications. Trade in the moment with market types instead of focusing your time on trying to find a unicorn, the trading strategy that works in every market type build a system for identifying the market type and apply a simple low risk high reward trading strategy that fits. Building a winning forex trading system does not have to be difficult, but it will be if you don't use market types.

Take some time To add the bollinger bands to your favorite currency pairs and identify the market types you're in right now. You can then complete the market types coursework. I'll see you in the next lesson.