If you can identify a trending market, it will be easy for you to trade it, if it is a bullish market, you will look for a buying opportunity, because you have to trade with the trend, and if the market is bearish, you have to look for a selling opportunity.
But the question is what is the right time to enter a trending market?
Trending markets are characterized by two important moves, the first move is called, the impulsive move, and the second one is called the retracement move.
See the example below to understand what i’m talking about.
As you can see, the market is making higher highs and higher lows which indicates a bullish market, if you see this market you will think of buying. But as you can see the market is making two different moves, the first move is an impulsive move, and the second one is a pullback or a retracement move. (corrective move)
Professional traders understand how trending markets move; they always buy at the beginning of an impulsive move and take profits at the end of it.
This is the reason why the market makes an impulsive move in the direction of the trend and retraces before it makes another impulsive move.
If you are aware of how trending markets move, you will know that the best place to buy is at the beginning of an impulsive move, traders who buy an uptrend market at the beginning of a retracement move, they got caught by professional traders, and they don’t understand why the market hint their stop loss before moving in the predicted direction.
See another example of a bearish trend.
The illustration above shows a downtrend market, as you can see the best trading decision is to sell the market at the beginning of an impulsive move.
If you try to sell in the retracement move, you will be trapped by professional traders, and you will lose your trade.
Now we know how to identify downtrends and uptrends, and how to differentiate between an impulsive move, and a retracement move.
This is very important for you as a price action trader to know.
BUT the most important question is how to identify the beginning of the impulsive move to enter the market in the right time with professional traders, and avoid being trapped by the retracement move?
To predict the beginning of the impulsive move in a trending market, you have to master drawing support and resistance levels.
So, what are support and resistance levels and how to draw them on our charts? this is what we will see in the next chapter.