A Happy Market!

Do you know what a Happy Market looks like?

Most traders assume that a Happy Market looks like this:

But you would be wrong.
A Happy Market actually looks like this:

Now notice I said the market was Happy, not you? The second chart is one that shows extreme chop, lots of whipsaws and is one that is sure to make most traders decisively unhappy, but this is an exact graphical representation of what a Happy Market looks like.

How is that? Because the market is content. Price is neither going up, nor down, and is happy to remain within a relatively small trading range.

What Makes a Market “Happy”?

Remember that price only moves when there is an imbalance between buyers and sellers. No imbalance, no movement. If the buyers and sellers are evenly matched, price will go nowhere. This is precisely why markets tend to only trend about 20% of the time. The rest of the time they are mostly content with their pricing and Happy to remain there, until something comes along to disrupt the balance between buyers and sellers and make the market Unhappy.

What Should You Do?

So what does this mean for you as a trader? Well for starters discipline yourself to wait for the market to tip its hand and show you that it is getting Unhappy, out of balance, and ready to move before you take a trade. I see traders all the time trying to “read” something into a chart that isn’t there. Don’t talk yourself into a bad trade. Learn to recognize when the market is Happy and don’t fight it!

Trading a Happy Market

Allow price to breakout of its trading range and show you the imbalance – and who controls the market – and then trade with the controlling group. If the market is moving from a state of balance to imbalance chances are pretty good that it will take a while to find its balance again. It is this period of imbalance, or market Unhappiness, when it is easiest for us traders to make our profit.
And that can make us very Happy.

For more from Erich, visit the Indicator Warehouse for additional futures resources and NinjaTrader Indicators.