Technical Analysis · 3 min read
Most strategies fail not because they’re bad, but because they’re used in the wrong market condition. Knowing whether you’re in a trend or a range changes everything about which tools are worth reaching for.
01Spotting a trending market
02Spotting a ranging market
03Measuring it with ADX
01
Trending markets make higher highs and higher lows
In a genuine trend, price keeps making progress in one direction with pullbacks that don’t erase prior structure. Trend-following tools work best here, since they’re built to ride sustained directional moves rather than react to short-term noise.
02
Ranging markets respect clear ceilings and floors
When price keeps bouncing between the same support and resistance zones without breaking out, range strategies — buying support, selling resistance — tend to outperform trend tools, which often generate false signals and whipsaws in this kind of environment.
03
There’s a tool built specifically to measure this
J. Welles Wilder introduced the Average Directional Index (ADX) in his 1978 book New Concepts in Technical Trading Systems specifically to quantify trend strength.
ADX < 20Range. Price lacks a strong direction.
ADX > 25Trend. A genuine directional move.
A reading below 20 typically signals a range, while readings above 25 suggest a genuine trend. It’s a fast, objective way to answer the question this article is built around, without relying on a purely visual read of the chart.
Conclusion
Before choosing a strategy, ask what kind of market you’re actually in — and if you can, check ADX rather than guessing. The right tool in the wrong condition still loses, no matter how well it’s normally executed.
Read the market first. Then pick the tool.
This article is for educational purposes only and does not constitute investment advice. Trading CFDs and other leveraged products carries a high level of risk and may not be suitable for all investors.
