Before opening a trade, every serious trader will first analyze the status of the asset he’s about to invest in. Although sometimes a narrow analysis can be sufficient and can lead you to profit, you should always try to get the whole picture of the market. In other words, you should be aware of your Forex market environment. In this article, we will show you what you need to know to be fully prepared for trading, so stay with us and read on!
Forex Market Environment | Trending Market
The first term to be explained in our article on Forex market environment is the so called trending market. A trending market is a type of market where the price is constantly moving in one direction. However, this may not be always obvious at first glance. For example, you can sometimes notice that there are some time periods in which the price is moving in the direction opposite of the main trend. Yet, if you take a look at bigger time frames, it may turn out that those were only retracements.
The trend, as you probably already know, can be an uptrend (also known as bullish; noted by ‘higher highs’ and ‘higher lows’) or a downtrend (bearish; ‘lower highs’ and ‘lower lows’). For best trading results, we advise you to pick a pair of the major currencies. Due to their big liquidity, their volatility will also be bigger than that of other pairs, so we can expect more dynamic trading and more opportunities for profit. In the next paragraph of our Forex market environment analysis, we will say a few words about the ways of determining the market’s trends, so don’t go away.
Forex Market Environment | ADX and range-bound markets
Average Directional Index Indicator (ADX) is the best way to determine if the market is trending. This indicator is very commonly used in Technical Analysis and it can tell you an objective value of a trend’s strength. This is a non-directional indicator, meaning it will reveal the strength regardless of the trend’s direction. If the ADX is showing more than 25 units, it means that the price is trending or that you’re already dealing a strong trend. Naturally, the higher this number is, the stronger the trend.
Another type of market that we’ll mention here in our Forex market environment article is a range-bound market. With this market type, the price bounces between high price and low price, where the high price is the major resistance level. The low price, on the other hand, acts as the major support level. Market movements can be horizontal or sideways, and they can also be determined by using the ADX.
Forex Market Environment | Conclusion
In your Forex trading environment, you always have to keep in mind the bigger picture of the market situation. Two most important market types are the range-bound market and the trending market, but no matter which one you’re dealing with, the ADX indicator can be very useful. There are some typical market situations that you will be meeting all the time, so we recommend that you learn how to use this index. This way, your trading will be easier and you will increase your chances to win. You can also increase your chances to win by reading our other educational articles, so take a look around and you will certainly find a lot of interesting materials.