Market Texture

What is market texture? Technical analysis and chart reading usually focusses on fairly classic chart patterns such as bull/bear flags, triangles and pennants.

In fact there are a few excellent services that can spot patterns across a spectrum of stocks. (e.g. Dan Zanger's Filtering Service ).

From my own experience, I had to coin a term, market texture. Various textures could have an important bearing to your profitability, the kinds of extra risks and drawdowns (heat) you have to face when the market is 'dirty' or 'jerky' (as opposed to smooth and clean).

As this page is still under construction, bookmark this page as I develop this topic. It is rather hard to communicate using words, topics which are involve patterns.

Basically, when the market is dirty, prices are moving erratically, within a price bar and between price bars. Within a price bar you cannot see and that is dangerous. In dirty markets, stops are threatened more often and obviously hit more often.

In clean markets, once a direction is started, markets do not move back (i.e. retrace) that dramatically or repeatedly. I found that money made in clean markets are often lost in dirty markets using the same trading methods!

Again, I am not unaware of trending and congested markets either. Dirty markets can still trend but it takes much more persistence to hold a trade as your stop is threatened more often.

I found that this market distinction actually helps me not take a trade.

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