Forex 101 - Guide to Forex Market Success

Forex trading is gradually becoming highly popular amongst traders, both, experienced and newbies. Since Forex markets deal with high volume and high liquidity transactions, Forex trading has literally become a "hot commodity". So if you are a Forex trader, the time is time for you to make some profits, provided you study the markets and do the right thing at the right time. Forex trading can benefit you more than other markets, since you can participate in several kinds of profitable trades through the day.

Understanding Forex Charts and Trends

Before you carry out actual Forex transactions, you will need to spend some time studying to understand Forex trends. One way to do that is to make use of Forex charts and learning to analyze them. You will notice that the markets display some patterns of price movements, which are often visible in the Forex Charts. These are the Forex trends you need to pay attention to. Once a pattern is established in these charts, it becomes the most probable course of future price fluctuations. Thus, such patterns give you an idea about what to expect in terms of the currency rates.

Types of Forex markets

There are two types of markets that you need to take note of and understand, namely, trending markets and trend-less markets (less frequently used). Here is how trending markets differ from trend-less markets.

  1. Trending market: A Trending market includes steady, elongated price movements with less than 45 degree angle and occasional pauses, profit taking, or resting periods. In a Trending market, you will be able to identify two main patterns:
    • Uptrend - A pattern of higher highs and higher lows is called "Uptrend".
      • Downtrend - A pattern of lower lows and lower highs is called "Downtrend".
  2. Trend-less market: These are less frequent markets with erratic price movements that are often steep (greater than 45 -degree angle). Thus, they cannot sustain the price movement for too long and end up reversing. The movements can go up many points in a very short time duration. But they then start oscillating rapidly. This basically means that you won’t be able to make a huge profit over time. In a Trend-less market, you will be able to identify these two main patterns:
    • Choppy - An erratic pattern of higher highs and lower lows is called "Choppy".
    • Sideways - A narrow pattern of lower highs and higher lows is called "Sideways".

In general, uptrend and downtrend periods are great to carry out Forex trading. Choppy markets create "stop outs" frequently by overshooting projected resistance levels, without crossing too far from the level. Sideways markets produce little in either direction and so, it is not easy to make profits during these periods.

In Forex trading, as in the case of any trading, your primary goal is to make profits. Trending markets are the best to try and make those profitable trades.