In order for beginners to survive and profit in the world of Forex, there are certain knowledge about technical analysis that you must know and skills that you must acquire.
Therefore, we will begin by explaining one of the essential fundamentals: trends and ranges.
In this article, we will explain the important basics of technical analysis, which you will need no matter what trading style or trading method you use.
The first thing to think about when faced with a currency chart
When you trade forex, the first thing you do when you open a chart is to figure out “what’s going on” with the market in front of you. This is the first step in technical analysis (chart analysis).
Depending on the situation, you can then decide
- Do you want to enter the market by buying or selling?
- When exactly to enter the market?
- Or, do we wait and see?
- What are the reasons and factors?
- etc…
It must be difficult for a beginner in Forex to think about these things out of the blue.
Therefore, as a first step to judge the situation, let’s learn to divide the chart situation into two simple types.
Perspectives to distinguish chart conditions “Trend and Range
When you look at a forex chart for the first time, you may be a little overwhelmed by the countless candlesticks lined up in front of you.
Looking at this chart, you will now use technical analysis to determine “what kind of situation” in your own way. First of all, it is important to take a simple view without thinking too hard.
This “simplicity” is a very important keyword for your growth as a forex trader, so please remember this when you feel “difficult or troubled …….
Please refer to the article below, which explains the importance of breaking down your trading skills into simple pieces and practicing them one at a time.
A situation where there is a sense of direction in price movement = Trend
In simple terms, chart situations can be divided into two main categories
- Price movements (candlestick patterns) have a sense of direction.
- The price movement (candlestick lineup) has no sense of direction.
This means that “the market is moving either up or down” or “neither is true”.
This “situation in which price movements have a sense of direction” is called a “trend condition,” while a “situation in which neither direction can be said” is called a “range condition“.
- When there is a sense of direction in price movement, the market is in a trend state.
- When there is no sense of direction in price movement, it is called a “range condition.
A simple graphical representation of the trend condition is shown below.
It is so simple that one is tempted to say, “It is too simple,” but this is the trend state. At a glance, you can see that the price movement is upward.
Although the term “technical analysis” may sound difficult, it is important to clarify something as obvious as this in order to understand the basics.
This situation is called an “uptrend” in which the market is moving upward.
(Conversely, a downward trend is called a “downtrend“.)
A situation where there is no sense of direction in price movement = Range.
And the “range condition,” a situation in which there is no sense of direction in price movements (a situation in which the price is lost), is shown in the figure below.
Unlike the trend condition we saw earlier, it just moves up and down in the same place, and we can’t say “up” or “down”.
It’s not like we can say, “It’s up,” or “It’s down. The market seems to be in a state of confusion and uncertainty.
Such a situation where there is no sense of direction is called a “range situation”.
Trends and Ranges are constantly repeating on the chart
The two patterns, “trending” and “ranging,” are the basics of chart analysis in trading, and they are an important foundation for forex trading.
The first step in forex trading practice is to grasp the chart situation through technical analysis and consider how to behave (whether to sell, buy, or wait and see) in that situation.
An important premise in this examination is the idea that “the market is in a repeating trend and range state.
For example, a market that is in a trend and then goes into a range…
A trend turns into a range and then back into a trend again.
A case in which the direction of the trend changes after a range.
A case in which the trend direction changes with a sudden reversal from a trending state.
… In this way, the market repeats the two states of trend and range.
What is the basic trading strategy?
As we have seen, by understanding the two major patterns of market price movements, a basic trading strategy can be identified.
They are as follows
- When the market is in a trend, trade in the direction of the trend.
- When the market is in a “range,” it is zigzagging without any sense of direction, so trade from the upper and lower limits of the trend to the opposite side of the trend. Or, you should wait and see.
In fact, there are all sorts of trends and ranges
However, there are many variations of trend conditions, and there are different points to aim for and different situations to watch out for.
The same is true for range conditions. Some ranges are worth trading, while others should not be entered into by force.
There are also “ranges that tend to go either up or down,” so it is necessary to respond to a variety of situations.
This area will be explained in detail in the future as necessary.
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I want to make sure you understand this now
For now, remember that there are two types of chart situations: trends and ranges.
In other words, the charts can simply be divided into two situations, and you should be able to determine these for yourself. This is the first step in technical analysis.
Start by practicing to judge with your own eyes whether a trend or a range is occurring by looking back at past charts using the charts in your forex account or MT4.
It’s natural to have questions. That’s fine
When you actually look at the chart and try to judge the situation for yourself, you will have many questions, big and small.
- How much movement in one direction is a trend?”
- It looks like a range, it looks like a trend, and it looks like …… I don’t understand it.
- If you look at the big picture, it’s a range, but if you look at the small picture, it’s a trend moving back and forth. Is this a range or a trend?
There will be many times when you will be at a loss to make a decision like this.
However, the key point is to recognize that you don’t know what you don’t know, and then try to find a place where you think “this is a trend.
In the beginning, you may only be able to judge a limited number of situations, but that is okay.
Over time, you will gradually increase the number of situations where you “think so in your own way,” and this will lead to improvement in your FX trading.
This will serve as a foundation from which you will be able to make trading decisions in various situations in the future.
Preview of next installment
The above is a brief overview of the question, “How to classify FX market conditions into two categories: trend and range?” We have reported on the contents of this report.
In the next issue, we will explain in detail about the “trending state” of the two situations.
We will use the Dow Theory, a powerful weapon of technical analysis, to explain in detail how to determine if a trade is in a trend or not during actual trading.
Please click on the link below.
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