Forex Price Action Basics - Lesson 3: Trending Markets

 

Previous lesson, Japanese Candlesticks

 

In the Forex market, price is generally doing 1 of 2 things, it is either ranging or trending. When price is ranging, it is moving in a general sideways direction between 2 price areas. When price is trending, it is moving in a general upwards or downwards direction. In this lesson we will cover the basics of trending markets. The next lesson will cover ranging markets. Both trending and ranging markets are happening all the time in the Forex markets and it is important that you know the characteristics of each.

 

 

What is a trending market?

 

A trending market is when the price of a Forex pair is trending. When price is trending, it is moving in a general upwards direction or a general downwards direction. Sometimes this is referred to as a bullish market (general upwards direction) and a bearish market (general downwards direction). We could also say that price is up-trending or price is down-trending.

What does price look like when it trends?

 

When price is up-trending or down-trending, price is moving in one general direction. In the Forex markets, price usually doesn't move in a vertical direction up or down, instead price swings up and down but with clear and steady direction. Below is a chart of the GBP/CAD Forex pair, you may notice that price is up-trending. Do you notice how price moves up and down but in a general upwards direction?

Each price movement higher on the uptrend is referred to as a push, swing, or rally. Each movement lower of the uptrend is referred to as a pullback, swing, or retrace. The illustration below should help you to understand this better.

Below is a chart of the EUR/USD, you should notice that price is down-trending. Do you notice how price is moving up and down but this time in a general downwards direction?

Each price movement lower on the downtrend is referred to as a push, swing, or sell-off. Each movement higher on the downtrend is referred to as a pullback, swing, or retrace. The illustration below should help you to understand this better.

Highs and lows?

 

Each price swing creates a swing high or swing low. These swing highs and lows can define a trend. These swing highs and lows are also the main characteristic of up-trends and downtrends. When price up-trends, price creates a series of higher swing highs and higher swing lows. When price downtrends, price creates a series of lower swing lows and lower swing highs. To obtain a better understanding of trend highs and lows, please watch the video below...

Price moves higher - swing high, rally or push

Price moves lower - swing low, retracement or pullback

Price moves lower - swing low, sell-off or push

Price moves higher - swing high, retracement or pullback

Watch this lesson...

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