Is the Forex market ranging or trending?
Is the market ranging or is it trending? Make note of this major factor before you plan your trade.
The overall trend direction of the Forex market is the first thing to consider while looking for a trade. Consolidation will be present in most circumstances, but it is critical to grasp the daily and weekly trends. This Forex market sentiment will have an overriding effect on the market and open trades.
Traders often agree that trending markets are the most straightforward to trade. A trending market carries momentum in one direction for a long time. While these trends can be highly profitable when Forex trading, the retracements and trend changes are very significant, so effective use of stop-loss placements is necessary.
In an uptrend market, the currency pair will form a series of higher highs and higher lows. An uptrend can be confirmed with at least two printed higher highs. In this trend, we should only look for buys on the daily or weekly timeframes.
When analysing an up-trending market, look to trade within the overall direction of the Forex market momentum. We can seek out confluence such as trendline bounces or higher lows to form at Fibonacci retracement levels. These patterns will form buy zones, indicating that the currency pair will continue to rise and profit.
In a downtrend, the currency pair will create a series of lower lows and lower highs. This can be confirmed by at least two printed lower lows. In a downtrend, we want to look for short/sell trades most of the time.
The shift in general momentum that causes a change in direction and pushes the price in a new direction is known as a “trend reversal.”
Range bound market
Range bound markets are the trickier Forex markets to trade within, as they can be erratic. These Forex markets will move sideways between two major key levels for a long period of time, and can often provide the most market manipulation. The price will not appear to be able to break through the support or resistance. It will just continue to move on a horizontal basis, confusing traders.
Some Forex traders will refer to this Forex market sentiment as “choppy conditions.” The range bound market will, frustratingly, not provide any long-term, clear direction. Yet, when a trader becomes frustrated, emotions can lead to negative results that are otherwise avoidable.
In an ideal Forex market, we would want to take advantage of these conditions by buying at the lows and selling at the highs. Even in an ideal world, it can be difficult to build a winning trading strategy from basic trading analysis. Using trendlines can help with locating entry points and exit points. To locate these points, a trader would enter the market upon break-outs, then extract profit at the bounces on the trendline until point 1 is reached.
Ranging and Trending Markets in the Forex Market - Conclusion
As important as it is to know the Forex market conditions and trends, it is also important to know when the market will retrace or reverse. By staying on your toes, you will be able to remain unbiased, enabling you to enter profitable break-out trades and more long-term positions. Expertise of the Forex market behaviour in different conditions will come with chart time and experience.