It can help sometimes to think outside the box when analysing new foreign exchange rates trends. While it’s often the fundamentals that will give birth to exciting new foreign exchange rates trends, traders are rarely able to apply fundamental analysis to currency trading – at least not with any great accuracy. Instead, they need to keep one step ahead of price action to pick out trends just as they are upon the cusp of forming. By understanding and asking the below questions, they are able to do exactly that.
Understanding Key Foreign Exchange Rates Trend Factors
In figuring out the likely trend direction and intensity of foreign exchange rates, keep the below issues and questions in mind:
1. When Are Trends Most Likely To Occur In A Currency Pair? It’s the trends that will most often be the biggest paymaster in the world of foreign exchange rates trading. Trends can rapidly release hundreds of pips into the markets, especially when caught early. It’s important for a trader to be able to be intuitive to some extent – to learn to anticipate trends before they happen. How? Just take a look at what’s going on with price action now. All too often price wont be trending, but rather meandering within a range or tight consolidation pattern. In fact, as a rule of thumb, most currency pairs spend 60% or so of their time sidewinding rather than surging! Sooner or later however, price will inevitably break out of a range and set a new trend. As a trader, it’s your job to be able to identify this breakthrough as soon as it happens.
2. Which Are The Best Days And Hours To Trade Your Favourite Currency Pairs? Study has shown that certain currency pairs move most during certain times of the day. Similarly, some trading days will simply be less hectic than others (for example when one part of the world has a national holiday). Being an alert foreign exchange rates trader involves knowing the best days and times during which to trade those specific currency pairs that are your trading staples.
3. How Many Pips Will Price Move In A Trend? Now of course, trading foreign exchange rates is not an exact science – however, there are ample techniques to try and gauge how many pips a trend might release before it stutters to a halt. Understanding how to calculate the likely pip distance that a trend is likely to catapult across your charts is key in setting articulate profit targets for more poignant trading. Only by having some method to calculate the likely price movement within a new trend can you really devise a system to capture the majority of that trend move.
4. How Will You Set Stops Safely To Protect Equity? Trying to position yourself inside trends can be a tricky game, especially when a trend is new and so may or may not take. Sometimes what appears to be a new trend breakout is actually not the formation of a new trend at all. It’s worth addressing how you will set your stop losses to ensure that a failed trend does not ride rough-shot over your trading equity. There are several possible ways of doing this – by placing a stop near by a broken trendline or support/resistance level for example.