FOREX THEORY
What is a Trending Market?
A trending market is one in which
price is generally moving in one direction.
Sure, price may go against the
trend every now and then, but looking at the longer time frames would show that
those were just retracements.
Trends are usually noted by “higher
highs” and “higher lows” in an uptrend and “lower highs” and “lower lows” in a
downtrend.
When trading a trend-based
strategy, traders usually pick the major currencies as well as any other
currency utilizing the dollar because these pairs tend to trend and be more
liquid than other pairs.
Liquidity is important in
trend-based strategies. The more liquid a currency pair, the more movement (a.
k. a. volatility) we can expect.
Check out Huck’s EUR/USD win from
following the trend.
The more movement a currency
exhibits, the more opportunities there are for price to move strongly in one
direction as opposed to bouncing around within small ranges.
Other than eyeballing price action,
you can also make use of technical tools you have learned in previous sections
to determine whether a currency pair is trending or not.
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