Trending markets offer us the best opportunity to profit, since the market is clearly moving in one general direction; we can use this information to our advantage by looking to enter the market in the direction of the trend.
An uptrend is marked by a series of higher highs and higher lows, and a downtrend is marked by a series of lower highs and lower lows. Note that trends do end, as we can see in the daily EURUSD chart below, the downtrend has come to an end recently after the pattern of lower highs and lower lows was broken…
I like to trade with the near-term daily trend by looking for high-probability price action strategies
forming within the structure of the market trend. What I mean by this
is essentially looking for price action setups forming near support as a
market rotates lower in an uptrend and near resistance as a market
rotates higher in a downtrend. Markets ebb and flow, and if you can
learn to take advantage of trending markets, you will have a very good
shot at becoming a profitable Forex trader:• Counter-trend trading
Since trends do end, we can also take advantage of this information. However, counter-trend trading is inherently riskier and more difficult than trading with the trend, so it should only be attempted after you have fully mastered trading with the trend. Some of the things to look for in a good counter-trend signal is a price action pattern or setup forming at a very obvious and ‘key’ support or resistance level on the daily chart, see here:
• Range-bound market trading
When a market is in a trading range it means that it is consolidating between a level of support and resistance. We can use the fact that a market is bouncing between support and resistance to our advantage. As the market approaches the support or resistance boundary of the trading range, we have a high-probability entry level, since risk is clearly defined just above or below the resistance or support of the range. When trading price action in trading ranges, you can watch for obvious price action setups forming near the boundaries of the range, see here:
• Forex candlestick charts and patterns
We discussed Forex charts in Part 7, but as they are very important to the way that I trade and teach price action, I wanted to give them a little more time. I have previously written an excellent tutorial on Forex candlestick charts that you can check out here: Forex candlestick charts
It’s important to understand that candlestick patterns have certain terminology all to their self that you should become familiar with before you attempt to master a trading strategy like price action.
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