What are Trending markets

To be a successful trader you have to first determine which kind of environment the market is in to determine the best strategy to use to trade. It could be trending markets or side ways. Your strategy should be able to suit the market environment and at the same time convenient for you to use to trade.

Some traders go for short term and others long term trading and this can only be successful when carried out in the right market segment. The forex market is classified into two;The trending market and Ranging/sideways  market.

What are trending markets?

A trending market is the one where prices move strongly in one general direction for a specific period of time. The market rallies either up or down in a trend. In up trend it forms new highs with respective higher lows and lower lows with lower highs in a downward movement.

Price may make corrections in the opposite direction of the trend completing swing movements but keeps its trend.

A trend can easily be identified by using a trendline. A larger time frame trendline is more valid and stronger than a shorter timeframe.

Let’s see how to identify a trending market in 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 an up trend.

Now let’s take a look at a trending market in a downtrend on a chart.

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.

Trending pairs are more liquid and strongly volatile.

The leading and lagging indicators such as Moving averages , MACD, Bollinger bands, ADX (Average Directional Index) are commonly used since they measure the strength and direction of the trend.

ADX helps to measure the strength of the trend but does not show direction.  This means it can be paired with the –DI directional movement and +DI to determine the direction of the trend. Other indicators used 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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