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HOW TO IDENTIFY A TRENDING MARKET?

HOW TO IDENTIFY A TRENDING MARKET?

A Trending Market

A trending market is one in which markets usually move in one direction. Yes, the price may go against the pattern now and then, but staring at more extended time frames will suggest that it was just a retracement.

Trends are typically identified by “higher peaks” and “higher low” in the uptrend and “lower peaks” and “lower low” in the downtrend.

When using a market-based approach, traders typically prefer major currencies as well as every other dollar pair, so these pairs appear to market and are more liquid than most other pairs.

Liquidity is critical for trend-based strategies. The more volatile a currency pair, the more fluctuations (a.k.a. volatility) we can foresee.

The more volatility a currency shows, the more chances there are for markets to travel steadily in one direction rather than jump about across narrow ranges.

How To Determine The Trend Of A Currency?

When you plan to trade a trending chart, and you must first be able to understand that a new trend is underway. This is a critical component of every Forex trend trading scheme. Seasoned traders are going to tell you, “The trend is your buddy!” For a good reason, since the earnings from a trending pair are higher and the trades will entail less harm. But, now that we know the benefits of trading in a trendsetting step, we need to build some strong guidelines to recognize future patterns in trade. We’ll explore a few trading strategies for detecting emerging patterns on the map.

Swing Tops and Swing Bottom – Yeah, we’re going to reiterate this, but price fluctuations are the fundamental characteristics of any trend on the chart. If the tops and bottoms are rising, we’re going to get a bullish trend. If the tops and bottoms are down, so we have a bearish pattern. In all those situations, we have a non-trend setting – a sideways market.

  • Third interplay with the Trend Line ( The 3rd Impulse) 

Any two points on the map should be connected to a straight line. However, if there is a third point on the same chart, then we have a tendency. In this way, the validation of the trend usually arrives after the price checks and bounces off the trend at the third tap. You may enter an open position when you see the bounce, hoping to grab a new direction.

Let’s look at the case above, EUR / USD. The arrows on the map show the positions where the price is a bearish indicator. The green arrows signify the price spikes, and the red arrows illustrate the corrective step.

The first two arrows pointed at the top of the trend are black. These are the first two references that have been used to establish a trend line. Now we’re going to sit close and wait for the price contact at the third tap. The 3rd arrow on the trend is a blue one. You’ll find a powerful bearish reaction off the trend line. This would be considered our validation of the trend and would ready us for a short position. The fourth arrow is blue, too, since the pattern has already been confirmed. In this way, a turnaround and a rebound from the trend will give us another chance to sell.

In this situation, all short-term trades provide a trading advantage, but the 3-point of contact would usually have a more excellent return-to-risk ratio.

HOW DO YOU KNOW IF A MARKET IS BULLISH OR BEARISH

It is crucial to be able to recognize the market trend when it comes to trading. If the market is on the rise, it mostly swings in one direction – either up (Bullish) or down (Bearish). As a trader, going against the trend will lead to undesired losses and make it even more difficult for companies to earn good risk rewards.

It is also essential to have accurate ways of defining the pattern, since stocks may often shift into a ‘range’ where they are not strictly Bullish or Bearish, but instead moving sideways. If you continue to learn how the market is heading out of the pattern, it can also benefit you. Consider investing in a market that’s on a positive run. You’re focused on buying positions. Even so, the market then starts to range. Suddenly, the ‘advantage’ is gone.

A BULLISH TREND

The bullish trending market is a commodity that is growing in price over time. The definition of the Bullish pattern is a market with higher highs and higher lows.

A BEARISH TREND

The Bearish trending market is one that is weakening over time. Defining the Bearish pattern is a market of lower highs and lower lows.

HOW TO DETERMINE THE TRENDS?

  • Visual observation is essential to this.

The first thing to remember about pattern detection is that it’s not a flawless science. I try to keep things as easy as possible and start by visually examining a pure market action chart with no indicators.

The most significant theme to recognize is the most visible emerging dominant trend in daily charts. We may define this using both short-term and long-term research, which starts by merely analyzing the maps.

  • Identify the most noticeable swinging peaks and lows

As a market trend, they leave swing points on the map. By paying close attention to these swing points, we can quickly see how the market is going.

  • Higher Highs, Higher Lows, Lower Highs, Lower Lows

If you’ve drawn the clear swing points on the map, you will decide if the market is HH and HL or LH and LL: HHHL – Higher High(s) and Higher Low(s), LHL – Lower High and a Lower Low.

Generally, in the uptrend, you’ll see a reasonably obvious pattern of HH and HL from market swing points, while in the downtrend, you’ll see an apparent trend of LH while LL from market swing points.

  • Will the market seem to ‘bounce value?’

Check the actions of the retracing market action and monitor it as it crosses long-term moving averages such as the 21-day ema (exponential moving averages) or the main horizontal resistance level. Will the stock action repulse down as in the downtrend or jump back as in the uptrend? This kind of price action is a clear indicator of the underlying bias/trend of the market.

  • Are there price action signals forming?

If you see price behavior signs that show large fluctuations in line with the pattern, this is another confirmation consideration for your business orientation. Also, note that repeated missed price action signals indicate that the market is moving the other direction (and probably reversing trends).

  • A shift in the course of the trend

If the price is going down, we want to pay careful attention to the recent swing highs, because in the uptrend, we will concentrate on the recent swing lows. We do this because not only does it show us the general pattern, but it also tells us by market behavior whether or not the trend is still intact.

If you are sure that you have established the trend / directional tendency of the market, you will be searching for a warning or area/level map to join.

Finding market preference or pattern is tricky, particularly for start-up traders, and most traders would find this to be a sticking point in their trading growth. It’s easy to consider the different feedback factors and configurations, but if you’re dealing against the prevailing market trend, the odds of making profits will drop significantly.