The Power Of Recognizing Market States.

...this template attempts to capture my thoughts regarding the implications of the four market states on a micro and a macro timeframe.

Knowing which state you're trading in at any given time can help you to adjust your way of managing risk to better fit the present conditions and maximize your edge.

If I'm trading a nice "trending" and "quiet" market on the macro/anchor/larger timeframe, but the micro/trigger/smaller timeframe is "volatile" (but also "trending"...) I know I need to hold through some pullbacks in order to offset any losses. I know my wins need to be sufficiently larger than my losses as opportunity for entry will be limited compared to, say, a "stable" and "volatile" anchor chart. I know if I look to move my stop to break even too soon, I risk being left behind on an otherwise profitable idea.

During the aforementioned "stable" and "volatile" period, you'll find repeated opportunities for profit but less profit potential per trade as the market will be doubling back on itself a number of times during any give period- N goes up R:R goes down.

If the trigger chart is quiet, I can eliminate risk sooner (by moving stops to b/e)without adversely affecting results, If volatile, I can choose to accept a number of b/e trades to get to my goals or, hold through the pullbacks...accepting that some will be deep enough to take out stops.

And so the list goes on and on....the important thing for me is being able to identify the environment as quickly as possible so that I can formulate a sensible plan of attack!