Technical Analysis For Night Trading: Trending or Consolidating


As a day trader, you always want to have a gently trending market, not too consolidating, otherwise it creates a very long and scary trading day. Well, what is a trending market and what is a consolidating market.

What is a trending market? Investopedia defines a trending market is one that goes "in one direction or another. A bull market is trending upward, while a bear market is trending downward. A trending market can be classified as such for either the short, mid or long term. Trending markets are of primary interest in technical analysis. Technical analysts maintain that trending markets occur with some degree of regularity and predictability. The ability to correctly discern these trends can have a substantial impact on investment returns."

What is a consolidating market? Investopedia defines a consolidating market as "the movement of an asset's price within a well-defined pattern or barrier of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset breaks beyond the restrictive barriers. " Since a consolidating market is one that is frought with indecision, it is best not to trade actively during consolidation.

What happens with night trading? If you want to trade after work, or before you go to work, regardless of where you live in the world, you'll be night trading. In the stock market, these periods are known as "extended hours." Try night trading stocks. You'll find lots of consolidation, very little trend. The difference between the bid (what you can buy the stock for) and the ask (what you can sell it for) will be large, and you may lose big just after you get filled.

So what can you night trade, not run into large bid /ask spreads, and not have to worry that the market is constantly consolidating? The answer is the futures market. In the futures market you'll find a vast array of different contracts you can trade that have liquidity (how fast you can turn your asset to cash), are mildly trending, and have just short periods of consolidation. For example, you can trade spot gold, crude oil prices, and you can be currency trading.

The best part of night trading is that you will see much less drawdown against your brokerage account. Investopedia defines drawdown as "the peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted as the percentage between the peak and the trough. " This means, basically, how much money you could lose from the time you enter the trade to the time you exit.

As the night trading futures markets only have mild trends, you actually will be trading in a safer time than during the day when all the markets are more volatile (the amount of uncertainty or risk about the size of changes in a security's value). Les volatility, less drawdown, more trends -- technical analysis and night trading!

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