Identifying Forex Trends Using Price Action
Trading Forex Trends Using Price Action
To make money consistently in the forex markets, you have to identify when a market is trending and when it isn’t. When you can identify a trend developing, by placing a trade in the direction of the trend you have increased your chances of making money in forex!
But how do you identify a trend? What are the characteristics of a trend? I thought you’d never ask.
The simplest way to identify a trend is through price. As markets move, they form distinct patterns that can tell you if the market is moving in an uptrend or downtrend.
Identifying A Forex Trend
When a trend is taking place in a forex pair, price movement will start to form peaks and troughs on the chart that you can trade successfully.
In an uptrend, price forms a series of higher peaks and higher troughs (i.e. higher highs and higher lows). In a down trend, price forms a series of lower peaks and lower troughs (i.e. lower highs and lower lows). Since a picture tells a thousand words, it’s easier to look at the following pictures.
What an up trend looks like:
What a down trend looks like:
Forex Trends Versus Trading Ranges
It is easier to make money in a trend than it is in a trading range. While you can still make money in trading ranges, you have to be more nimble at jumping in and out of the markets. That makes it a lot tougher!
So what does a trading range look like?
Trading ranges can be really messy, which is why you should look at trading trends. During times when the markets are chopping around, it’s a good idea to stay out. Get back in only when the markets start to trend again!
Here are some examples of what trends and trading ranges look like. To see the charts, click on the thumbnails.
GBPUSD Daily Chart – Uptrend
USDJPY H1 Chart – Downtrend
Here’s an example of what a trading range looks like:
USDCHF Daily Chart – Trading Range
You can see in the trading range that the market moves up and down erratically, which makes makes trading a trend much easier in my books!
Trade The Trend Or Trade The Range?
Which one would you think is easier to trade? The trends or the trading ranges? Although this may seem pretty basic, being able to identify when a pair is in a trend or trading range will help you to make money consistently.
When you can identify the trend, you know which direction is the higher probability trade. It it's an uptrend, buying the currency pair will give you a better probability for profit. If it's a downtrend, selling the currency pair will give you a better chance of making money.
This is how important being able to identify a trend is!