One of the first steps to create an investment strategy is to identify conditions on the market you want to trade on or are already trading on (but whithout a system). There are three main types of market behavior: trend-based, lateral and changing. Usually, the market shows one type of behavior only. Sometimes, however it happens that a trend-based market will turn to a lateral trend but, sooner or later, it will revert to its previous behavior. Similarly, a changing market may sometimes turn into a trend-based market or a lateral market. Of course the market may change its behavior permanently - a market characterized by clear trends may become changing market or turn to a long-term lateral trend.

Each market type has different patterns of behavior reflecting market responses to different events and circumstances. Criteria used to make profits on different markets differ as will - what works on a trend-based market, may not (and most often will not) work so well on a changing market. The key is to create the strategy to make profits on the market it was designed for and minimize losses in different market conditions.

Therefore, before you start developing for trading system, look at the market you want to conduct your transactions on or you are already trading on (but without a system) and identify its behavior type. You can also determine what your favorite market type would be for trading and specify criteria for the system only after you have found such a market.


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