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Forex
Trading: What are Trading Trends & Ranges?
When you choose to start trading in the Forex
market, which is often call the foreign exchange market, you
will need to bone up on a little trading vocabulary. Learning
specific terms and what they mean are essential before you
even think about using real money to trade. You would never
get into a pilot’s seat and try to fly a plane without ever
having taken flying lessons. The same goes for foreign exchange
market trading. You need to be fully aware of what you are
doing. This is a market that is not quickly learned, so you
should never assume that once you jump into it, you will learn
as you go. While some people opt to do that, they typically
end up losing an adequate sum of money because they were not
as prepared as they should have been. Knowing the importance
of trading trends and ranges in Forex trading is very important.
If you are thinking of trading in the Forex market, be sure
you know what these terms mean and their implications.
Trading Trend
When price moves consistently in one direction in the Forex,
a trend occurs. When the direction is higher, the trend is
often called bullish. When the direction of the price is moving
lower, the trend is often called bearish. These terms are relative
of course. When you define a trend, you should always remember
that price peaks and troughs are in the same direction. When
you are dealing with a bearish trend, remember that price highs
and lows are moving lower. Likewise when you are dealing with
a bullish trend, they are moving higher.
Often when trends occur, it is possible to draw support
lines under one that is moving higher (an uptrend). You can also
often draw resistant lines above one that is moving lower (a
downtrend). Once you see these lines break, it can be assumed
that the trend is complete. At this point there is a possibility
that the trend will begin to reverse. When it does reverse,
you will need to know the pattern of what that entails.
Trend Reversal
When you hear of a trend reversal, it simply means that the
direction of market prices is changing. Often you will see
trend reversals following a four step pattern. Usually, this
includes the market making a new high, the trend line being
broken, the market making an intermediate low, and a new rally
that does not match the first high. Many times you will see
prices break the previous low however. You may come across
terms such as Double, Triple Tops, and Bottoms, which are all
trend reversal patterns. Head and shoulders patterns are also
popular reversal patterns.
Trading Range
The trading range is actually a sideways chart pattern. It
is often used to represent a resting period before the original
trend is resumed. You may see these when you are charting trends
and should know what they imply.
Often trends are very important to investors. Those who engage
in trend-following are people who look at major trends and
make decisions in the direction of the trend. This can be a
good strategy, but you must know a great deal about trends
and the market in general in order to use this technique successfully.
Beginners are not usually very good at tracking trends and
using trend-following techniques. One thing that you should
also note is that some price movements are trendless. This
means that they have no clear direction, which makes trend-following
nearly impossible.
Remember, that in order to fully understand trends, you must
be educated in the ways of the market and foreign exchange
in general. Beginners should not rely heavily on foreign
exchange market trend tracking. Once you get more experience you can
begin looking into tracking more and more. However, be aware
that different things affect and influence the Forex. These
influences can change what people expect trends to be. Therefore,
you should be a seasoned trader in order to rely on the trends
and ranges alone. Educate yourself on these terms and learn
to recognize them in the actual market. After all, learning
the terms is one thing and being able to see them in reality
is different.
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