Expert Trader Strategy: Market Regime & Segment Analysis

Traders are known to deploy different trading strategies like price action, technical indicators, patterns or any combination of these. Very few traders create their own strategies while others are happy analysing charts, identifying levels of support and resistance, overbought or oversold zones, trading breakouts etc. The former is an objective approach, whereas the latter is subjective.

Understanding Price Action

Irrespective of the approach they take, the price is the focal point here. The buy or sell decision is largely influenced by price behaviour. According to expert trader Prashant Shah, studying price behaviour is crucial because “the Price is supreme”. Price action is a vast ocean—there are numerous strategies to understand it better. No two traders will look at the price the same, making this approach subjective.

When one identifies a breakout in price, someone could perceive an overbought zone. No one’s wrong here; their opinions are based on their strategies. However, there’s an appropriate time to apply each strategy. One strategy would not be efficient in all market scenarios. This makes it extremely important to recognise favourable scenarios for our strategies so we can activate them when the need arises. Also, we must understand when to refrain from applying these strategies.

Building A Market Regime

This encourages us to build a ‘Market Regime’, which guides us when and when not to apply a strategy. The three vital questions that a trader must answer are:

1. How to trade a particular market
2. Which segments or stocks should be traded
3. When to trade

In a nutshell, these questions are ‘How? What? and When?’.

The answer to our first question i.e., ‘How?’ is price action or any other strategy you like. To answer the remaining two questions we will use Segment Analysis, Regime Analysis and Phase Analysis. There are various techniques that help us in our analysis of market behaviour.

To learn Prashant Shah’s exclusive techniques that can help make your approach more objective, watch the full video.

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