A Trending market in Forex is where prices move strongly in one general direction for a specific period of time. In a Market trend, prices rallies either up or down
However, price can never move in a single direction for a long time without meeting any distractions. when that happens, it makes a pullback or retracements.
In the Forex market, there are both short term traders and long term traders.
The short term traders mostly trade price retracements of the main trend.
Whereas the long term traders look at the main trend.
The Forex market is classified into 2 market segments;
- The trending market environment
- Ranging/sideways market environment.
As you plan to trade, formulate a strategy that suits the market environment you intent to trade in. At the same time convenient for you to use to trade.
What is trending market in forex?
As earlier mentioned, trending market in forex is one where prices move strongly in one general direction for a specific period of time.
In an uptrend, it forms new highs with respective higher highs and higher lows. The downtrend makes lower highs with lower lows.
Price may make corrections/pullbacks in the opposite direction of the trend completing swing movements but keeps its trend.
In fact,
A larger time frame trend shows a more valid trending market and stronger than a shorter time frame.
Shorter time frames trends are retracements on the larger time frame.
If you want to know whether the market is trending, check on the larger time frame.
How to identify a trending market in forex as an uptrend.
Take a look at the AUDJPY, 4-Hour chart below.
From our chart above, you can clearly see price making higher highs and higher lows. These are typical characteristics of a trending market in an uptrend.
Higher Highs and Higher lows are elements of an uptrend
A trending market in a Downtrend.
Below is a CADCHF, Daily chart in a downtrend.
As the market trends down, it makes lower lows and lower highs. This indicates that the bears are still strong and are in control of the market.
Lower Lows and Lower Highs are elements of a downtrend
In addition, trending pairs are more liquid and strongly volatile.
Indicators you can use to identify a trending market environment
The leading and lagging indicators such as Moving averages , MACD, Bollinger bands, ADX (Average Directional Index) are commonly used. This is because they measure the strength and direction of the trend.
ADX helps to measure the strength of the trend but does not show direction. It is therefore paired with the –DI directional movement and +DI to determine the direction of the trend.
Other indicators you can use are Moving average, Bollinger bands, parabolic SAR and Ichimoku Kinko Hiyo.
We shall go through each of these indicators and see how to use them to identify a trending market.
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