How to Analyse the Markets
The first thing we need to do before entering any trade, is to analyse what the market is doing for each particular Forex pair.
To make it simple, the market is only ever doing three things;
1. Moving up
2. Moving down
3. Moving sideways
Firstly, I must explain what a swing point is and how to spot them on our charts. We have two types of swing points to consider:
- A swing low
- A swing high
It’s far easier to show you on a chart how these look, see below:
Once we can recognise swing points we can establish the trend and what the market has been doing.
So how do we work out what the market is doing?
Well the easiest way is to pull up a chart for any Forex pair and scan the charts from left to right and by examining the swing points we can analyse what price is doing. So for example:
If price starts in the top left corner and moves down to the bottom right corner, price is moving down and we call this a downtrend. We should see lower highs and lower lows forming.
See chart below:
If price starts in the bottom left corner and moves up to the top right corner of the chart, price is moving up and we call this an uptrend. We should see higher highs and higher lows.
See chart below:
If however prices seems to be moving across the chart horizontally or sideways, we would call the market range bound. With price unable to make new highs or low swing points
See chart below:
Sometimes a chart will look so messy and almost impossible to pick any swing points at all. If you see a chart that is hard to analyse and looks a mess, simply move onto the next chart, don’t waste your time.
Once we know how the market is moving, we can consider our options and start looking for a trades.
Trend and counter trend trades
Before, looking at what types of trades to use, we need to go over trend trades and counter trend trades.
- Trend trades, are trades where we are trading with the current momentum. So for example, if we had a nice uptrend established and took a trade long. We would be taking a trend trade.
- Counter trend trades, are trades where we take a trade against the current momentum. So for example, taking a short trade in an uptrend market.
Now it is an important factor to consider because there is a big difference between trend trades and counter trend trades. Trading with the trend will always have a higher chance of being successful compared to trading counter trend.
For any new trader I recommend looking for only trend trades, as they have a much higher chance of working out. Counter trend trades are for the more experienced traders who know where the best places to take them from are and understand the risked involved.
Focusing on only trend trades is not a problem for a trader because the Forex has so many pairs to follow we can use this to our advantage and focus on only the pairs that are trending nicely.
Watch these two videos, which explain further what trend and counter trend trading is.
A guide to trend trading
A guide to counter trend trading
Module 1: The Basics
- Unit 1: What is the Forex?
- Unit 2: Forex terminology
- Unit 3: Fundamentals v technical analysis
- Unit 4: What is price action?
Module 2: Market Analysis
- Unit 1: How to analyse the markets
- Unit 2: What types of trades can we use?
- Unit 3: Marking support and resistance levels
- Unit 4: Time frames/best times to trade
Module 3: Price Action Setups
- Unit 1: Price action setups introduction
- Unit 2: Pin bar
- Unit 3: Engulfing bar
- Unit 4: Inside bar
- Unit 5: Sandwich combo setup
Module 4: Chart Setup
Module 5: Trade Management
- Unit 1: Trade plan
Module 6: Trade Psychology
- Unit 1: Psychology introduction
Module 7: Continue your learning
- Unit 1: What next?