As you start analyzing forex charts you will realize that the market often display's some very familiar patterns of price movement. Once a pattern is established, it becomes the most probable course of future price action until the market changes.
There are two types of markets which will become very important for you to identify and understand; these are: trending and trend-less markets. Each market type has two specific patterns which you will also notice over time.
These market types and patterns are defined as follows:
Trending - Steady elongated price movements with less than a 45 degree angel with occasional pauses, profit taking, or resting periods.
In a Trending market, you have also other patterns:
- Uptrends - A pattern of higher highs and higher lows.
- Downtrends - A pattern of lower lows and lower highs.
Trend-less - Erratic price movements which are often steep ( greater than 45 -degree angle ) and cannot sustain and therefore must reverse. Although the movements can move many points in a short period of time, they often result in very little net price movement over time.
In a Trend-less market, you have these patterns:
- Choppy - An erratic pattern of higher highs and lower lows.
- Sideways - A narrow pattern of lower highs and higher lows.
While up-trend and down-trend days can offer excellent trading results, choppy markets often create stop outs, while sideways markets produce for little in either direction making them hard to trade and to make any profit during these periods.
Your trading objective is to get into a trending market and ride the trend until you make your target profit objective.
There are many Trend Trading Strategies that you can find in a number of sources listed in my website (http://www.1-forex.com). You will learn how to identify and draw your own channel trendlines, support and resistance lines, triangle patterns, chart key top and bottom formations, etc.
Remember, knowledge in the Forex markets is power, and more than power; money.
Forex Trader and Freelance Writer