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FOREX, A Trending Market

The Forex market is widely known by its high liquidity and high volume of transactions occurring during most of its long trading week. These characteristics highly contribute to make the Forex market a very trendy market with few trend-less periods during the whole trading period.

But what does this mean to the Forex trader? Mainly this trendy characteristic of the currency markets means that there will be plenty of opportunities for the trader to find profitable trades during the day.

As you start analyzing forex charts you will realize that the market often display’s some very familiar patterns of price movement, this is; trends; and you will notice that once a pattern is established, it becomes the most probable course of future price action until the market changes. Giving you a good forecast of what comes next with the currency prices.

There are two types of markets which will become very important for you to identify and understand; these are: trending and, the less frequent, trend-less markets. Each market type has two specific patterns which you will also notice over time.

A Trending market is defined as a steady, elongated price movements with less than a 45 degree angle with occasional pauses, profit taking, or resting periods.

In a Trending market, you will notice two main and quite evident patterns:

Uptrends – A pattern of higher highs and higher lows.

Downtrends – A pattern of lower lows and lower highs.

There is also the less frequent kind of market, this is a Trend-less market with 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 are constantly and rapidly oscillating with the consequence that they often result in very little net price movement over time.

In a Trend-less market, you will find these main 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 periods will offer excellent trading results most of the time, choppy markets often create stop outs, this is they activate your stops by constantly overshooting your projected resistance level but without never really crossing too far from this level; while sideways markets produce for little in either direction making them hard to trade and to make any profit during these periods.

As always in Forex, your main trading objective is to get into profitable trades most of the time and a trending market is the perfect situation to find this profitable trades by riding the trends until you make your target profit objective of the day.

Robotic or Discretionary Forex Trading – Which is best?

Pure forex discretionary trading will rely solely on the traders judgement. For example a discretionary trader may spot a particular pattern developing on a chart and decide to enter a trade on that basis. It would be impossible to systemize their trading because it relies on subjective judgements and gut feel.

Robotic forex Trading

Pure robotic forex trading involves the development of trading rules that cover every situation, from entry to exit and position sizing. The trader is executing a predefined plan. They must however take every trade that the system gives them which can be difficult if the trader begins to think too much!

Both sets of trader are working hard at different times and at different things. The Robot trader spends time developing a system and does not need to think whilst trading, merely executing a plan. The discretionary trader has to be thinking all the time that they are trading and can suffer from information overload.

Which is best?

The answer is probably a combination of both approaches. Coming to the market with a proven strategy rather than relying on gut instinct is far less stressful and gives the trader more confidence. However the markets are always changing and one trading strategy will not work forever – i.e. the Turtle Traders. Strategies will always need updating.

Many traders will use a robot to generate buy and sell signals but then use discretion, reading the market, to attempt to gain better fill prices.

All successful traders will use some sort of proven trading strategy to begin with but the level of discretion allowed by it will vary. A trader with no plan at all will fail.

 

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