Trends and Ranges of Forex Trading

Once you have decided to trade in Forex, you have to learn some of the terminology used in Forex Trading. This is critical as you need to understand what you are doing before you can begin trading in Forex. The meaning of the terms used and their implications are keys towards grasping a better understanding of the Forex market. You need to be aware of the trading trends as well as the trading range before you can formulate any trading strategies. This market requires technical knowledge and you must never take for granted that you can learn the trade, as you go along. If you choose to adopt this approach, what you will end up with eventually is an empty pocket and a lot of frustrations. The correct way to go about venturing into this market is to ensure that you have a firm understanding of what is happening in the market. The only way in which this can be achieved is by educating yourself. There is no shortcut.

Trading Trends

Trading trend is said to occur when the prices in the Forex market move constantly in one particular direction. It is considered bullish when prices are on the upswing and investors’ confidence is running high. The trend is regarded as bearish when the fluctuation is on the downswing. Whenever we are defining a trend, always keep this point in mind that the peaks & troughs of prices are also moving in the same direction. 

You can draw support lines under an uptrend or resistant lines above a downtrend. Once these lines have been breached, it is assumed that the trend has completed its cycle and will start to reverse. When it has begun its reversal, you will need to know what this entire reversal trend means.

Below is an example of a chart with an uptrend and downtrend with the support and resistant lines on it:

Trend Reversal

Trend reversal simply means that the course of market prices is altering.  Trend reversal normally follows a four steps pattern:

• The market is reaching a new high
• The trend line has been breached
• The market making an intermediate low
• A new rally that doesn’t match the initial high. 

You should also take note of terms like “Double”, “Triple”, “Tops” and “Bottoms” as these are terms which reflect the kind of reversal pattern that you will come across.

Trading Range

Trading range essentially refers to a sideways charting pattern. Normally, it is used to denote the latent period before the original trend starts. You can understand all this once you start charting the trends and will understand what they illustrate.

Understanding the current trend is very important for any investor. Most of the investors these days look at the historical trends and then make their investment decisions. It can be a good strategy but you can’t make decisions only on the basis of historical data, you need to do fundamental analysis as well. This is where the beginners usually stumble as they just rely on trend analysis to make their investment decisions. You must be careful here as sometimes there is no particular trend for certain things.

One thing that you need to keep in mind is that you must have a basic foundation about Forex trading.  Novice should not just depend on the Forex trend analysis. You must know about all the terms and tools that are used for Forex trading. Once you have gained experience then you can start doing some other analysis and using some advanced tools for tracking indices. However, one should be aware of the fact that there are numerous other factors that can influence Forex. These factors can change the outcome which was predicted by trend analysis. So, one should be an experienced trader in order just to trade base on trends and ranges.  Thus, educate yourself properly on these key terminologies and learn as much as you can about the tools use to analyze the real market. Finally, knowing the key terminologies and using them practically is two entirely different things. So try to understand their implications also.