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Analyzing The Forex Market

Analyzing the Forex market is something that you need to be very good at in order to succeed in Forex trading.

Is the market trending?

What is a trend? An uptrend is when the price is making higher highs, and higher lows. A downtrend is when the price is making lower highs and lower lows. The picture on the right is a good example of a trending market.

Is the market consolidating?

A consolidating market, or sideways moving or ranging market, as some people call it, is exactly how its described, a market that is not trending, or a market that is moving sideways.

Here is a good example on the left of a consolidating, sideways moving, or ranging market.

Correctly identifying what stage the market is in, is a skill that will pay dividends if you can get it right. Staying out of the market when its consolidating will save you from potential losing trades and entering the market when its trending will increase your chances of making a wining trade.

Going short in a downtrend, or long in an uptrend will often result in a wining trade. Trend trading is a method used by a great number of traders, so trading with the trend is always good advice for new traders, as you are trading with the majority of traders. If the majority of traders are selling, or buying the market will go down or up based on that principle.

If you follow the trend you increase your chances of a successful trade. Have you ever heard the phrase “the trend is your friend” I prefer the phrase “the trend is your friend, until it ends” because if you enter a trade at the wrong point in a trend, you run the risk of the trend reversing on you, and you are now going the wrong way. The trend has now changed from a downtrend to an uptrend, and you are short in an uptrend which is not a good trade to be in for obvious reasons. Knowing when the market is going to reverse will enable you to enter at the start of a new trend, and not get caught at the end of a trend that is about to reverse.

You can find more information about trend trading here.

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