Waves: Waves in the Market


One of my core beliefs concerning trading is this; a market trades in wave like patterns.

It will move up in a progression of waves, very much like when you watch a gentle tide roll in, at the beach.  At times the ocean and waves are rough, and at other times the ocean and waves are very smooth; like glass.  I would also agree, easier trading is completed when the waves are in a smoother; more predictable environment.

Another core belief concerning trading; how volatile and aggressive is a market. This can best be demonstrated in wave patterns; like a normal storm, a tropical storm or even a hurricane.  There is a time to trade and not to trade. Perhaps, the smooth, predictable environment is like the consolidating trading ranges, when a market hasn’t shown anything tradable. I find the easiness of the market in calmer waves is a more enjoyable trading experience than extreme volatility.

Yes, it is a true statement, you need volatility in a market to trade it but …

The market can become too VOLATILE to trade.  The waves can become very violent and the up and down extreme swings of a market will leave many traders terrified and decimated, if they trade it.  Extremely volatile markets should be a time when the small account trader must stand aside, or you will risk too much of your trading account per trade you take on.

So understanding the type of wave patterns, the ocean, will assist you as a trader.

How is the water (WAVES) today? 

Is it the cold, January, water of winter, the hot, July, water of summer or somewhere in between?

Waves can be counted. This is the KEY to a trend with wave patterns.   

Waves can be seen in Price Action, and in Moving Averages plotted on the chart.  Price Action by itself can only tell you so much.  I know of traders who have the ability to simply trade on the Price Action of the charts and nothing else.  These traders are the true surfers and artists of trading.  They find it completely natural to be in a market and understand Mass Trader Psychology (MTP) of a market.

For most of us; we need an indicator to help us in trading, but if you place too much information on a chart, then you will not be able to place a trade at the appropriate time.  It is a fine line, between not having enough information to make a trading decision and having too much information on the chart.

When you have too much information on your trading chart, then you will find yourself paralyzed in your decision making process. If this happens to you in your trading, then you need to reconsider the indicators you are using. Determine which indicators are beneficial in your trading decisions or not.

Did you miss my last training? How to Determine the Overall Trend

Go to next training: Support and Resistance: S&R in the Market

Good Trading and God Bless,

David M. Knight

P.S. YouTube Video Series: HVS Trading Strategy 

About The Author

David M. Knight

I am a 30 Year Futures and Commodities Trading Veteran. In addition, I enjoy games of skill and chance like: poker, craps, blackjack and roulette. During my professional career, I have developed and implemented successful trading strategies and methods; along with winning systems in games of skill and chance. Join with me on our mutual journey together.