Three Stages of the Market

The market is always trading in one of three stages:

1. Up Trend (Bullish)

2. Down Trend (Bearish)

3. Consolidation (sideways).

These can be broken down into Compression & Expansion

Compression (aka Consolidation)

• The place most traders lose money is during a compression phase of the market. When prices are not following through and you get small losses over and over.

Expansion (aka Breakout)

• The place most traders make the most money is during expansion phases, that is when a market is trending well and trades are moving.

Things to Remember

• The first thing we want to look for when we start looking at a price chart is, what is the current market environment.
• Are we in compression? If yes, wait for a breakout.
• Are we in expansion? If yes, what directional bias do we have?