Market trend in Forex Trading

Market trend in Forex Trading

In Forex market, a trend is the general flow of price in direction over a given period of time. This could be buying in which the price rises up on the chart, or selling where price falls consistently on the chart or even a zigzag pattern where price buys to a defined high level on the chart then sells back to a low level and then buys up again in a repeated cycle. Basically there are three trends in Forex: upward, downward and zigzag which is also known as sideways trend.

In an upward market trend the previous closing point of price will be lower than the current closing point and each time the closing points keep rising. However, there are instances where price fails to follow this rule in the course of the upward trend and is then said to have a pull-back. Pullbacks last shortly and can move so fast but generally price corrects itself and continues flowing in the upward direction. The same experience applies to a downward trend. The upward trend is commonly referred to as a “bullish” or “buying” trend and a downward trend is referred to as a “rallying” or “selling”

A zigzag or sideways trend is the behavioral pattern of price buying and selling within two particular pre-defined zones on the charts. On a metatrader4 platform one can identify and mark these price zones from the historical representation of price on the chart with the line drawing tools. The higher trend line that is yet to be reached by price is called “Resistance” while a low trend line that has already been touched by price is called “Support.” The trend lines will then be used predict possible direction of the market in the near future.

What do market trend represent?

A trend represents the flow of orders whereby in a selling trend the largest share of the market is dominated by sell orders while the buying trend the market is dominated by buy orders in that particular instrument being traded. Over time the market trend can change from one to the other and as a retail trader it is always profitable to follow the trend hence the saying, “The Trend is Your Friend.”

Technical traders rely heavily on price formation and price representation on the chart. As such, lines also referred to as trend lines are drawn along the representations of price on the chart. This way of trading has proven trend lines to have a significant impact on price behavior and direction. Whenever price approaches a Support or a Resistance level it tends to change in behavior and sometimes its direction too. For instance it could bounce off a trend line or swing up high thus cutting through a trend line in a rush fashion.

Impact of news on market trends

The Forex market is highly sensitive to financial, political and Geo-political information. Any kind of news presenting this information will instantaneously trigger a sudden swing of price on the chart. The assumption in this case is that speculations on news lead to market players making an impulsive decision that is biased in one direction hence causing a swing in price.

The impact of news is always felt by both the selling and buying sides of the market. As such, the impact of news can strengthen a trend or destroy the trend leading to a trend breakout, depending on intensity of the released information to the market players.

Forex trading can be highly profitable to a trader that masters a trend-based trading strategy and knows how to safely size their orders, which needs mastery of risk management. The trend will always be your friend!

Categories: Tutorials

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