Two Types of Forex Market Trends
Forex market trends can be trending or lateral. It can also be many other things, obviously, but it is in these two alternatives that the greatest profit opportunities for traders lie.
The market is defined as trending when it has a clear direction, perhaps consolidated. Obviously, this direction, and therefore also the trend, can be bullish or bearish. As you can easily imagine, the trend is bullish when the price rises, and bearish when the price decreases.
The trend is lateral when, despite some shocks or timid attempts to rise or fall, the price tends to maintain the same positions. Recognizing this pattern early draws on the same skill set covered in lateral thinking for traders.
Which Trend Type Is More Profitable
Which trend is the most profitable? The answer is almost obvious: the trend. First of all, if it is solid, it is possible to invest with a certain guarantee of safety. Secondly, if it is touching the apex, it is possible to identify, thanks to the tools of technical analysis, the breakout, the breaking of the trend. It is much more difficult to sense the beginning of a trend if the movement is lateral.
Trading Opportunities in a Sideways Market
Yet, it is possible to profit even if the market is moving sideways. How? Easy to say. For a fuller walkthrough, see how to trade a sideways market.
First, it must be recognized. Even lateral phases, if viewed too closely, can resemble trends. This is because, if the horizon is very short-term, only the up or down movements are glimpsed, and not the subsequent settling movements. To identify a lateral phase, it is sufficient to choose a broad timeframe, but it is very useful to rely on moving averages. The more the moving averages follow the price, the greater the evidence of laterality. Before acting on it, it helps to run through 4 essential questions to ask.
Confirming a Trend with Supports and Resistances
For the rest, it is sufficient to use the usual tools, such as supports and resistances. Lateral phases, when they remain such, project the price into the range delimited by supports and resistances. In fact, the price, in general, does not even come close to it. When the touch and go becomes more frequent, one can start to think about the beginning of a trend. In any case, it is possible to plan the entry into the market when the price touches and exceeds one of these important pivot points.
Obviously, supports and resistances, although useful, are not 100% reliable. Even in this case, the principle of interdependence applies. A signal is reliable only if it is confirmed by multiple evidences. The ideal is therefore to use indicators and moving averages.
