Forex Market Dynamics: Uptrend, Downtrend and Range

A currency pair can move in three different ways. There is always a question of an uptrend, a downtrend, or no trend at all, also known as range. It’s very important for a forex trader to have a clear view of this so-called market dynamics beforehand.

Uptrend

A currency pair is in an uptrend when the long-term price is moving upward as shown on the chart below:

forex uptrend

An uptrend means that there are more buyers than sellers, as a result of which the price of a currency pair is moving upward. An uptrend is also called a bullish trend.

As you can see on the above shown chart the price is not moving upward in one straight line, but in the form of so-called swings. Within a trend several minor corrections, also called retracements, are taking place. When a retracement occurs, a part of the traders are closing their profitable positions while another part of them are closing their loss-making positions. After a temporary retracement the price is going to return into the original direction of the trend.

Specific to an uptrend is that there are higher swing highs and higher swing lows.

Definition of swing high (SH) and swing low (SL):

  • A swing high is a candlestick with at least two lower highs on the right side as well as on the left side.
  • A swing low is a candlestick with at least two higher lows on the right side as well as on the left side.

Downtrend

A currency pair is in a downtrend when the price is going down in the long term, as shown on the chart below:

forex downtrend

A downtrend means that there are more sellers than buyers, as a result of which the price of a currency pair is going to drop. A downtrend is also called a bearish trend.

Characteristic of a downtrend is that there are lower swing highs and lower swing lows.

Range

A currency pair is going into a range when the price isn’t specifically going up or going down, but it’s more frequently going up and down, as shown in the chart below:

forex range

A range means that the buyers and the sellers balance each other out, as a result of which the price of a currency pair is moving in a range.

There also can be a range within a trend and this is also being called consolidation. Within a trend you’ll consequently see that the price is temporarily going into a range and then resumes going into the direction of the original trend.

Look at the big picture!

If you want to determine whether there is a question of an uptrend, downtrend or a range, it would be sensible to first take a look at the big picture. You should do so by scaling in on larger time frames.

To clarify the importance of this, I’ll use the following example:

The assignment is to count the number of automobiles which are driving along the highway. Person A is standing next to the highway and person B is standing on the mountain which offers a good view of the highway. Which of them is in your opinion standing in the best position to be able to count the number of cars the easiest way?

The same principle also goes for forex. Imagine you’re studying the 15-minutes chart and it seems like EUR/USD is being in an uptrend. When you add the day chart to your observation, it could very well be possible that EUR/USD turns out to actually be in a downtrend and that the so-called uptrend on the 15-minutes chart is in fact a retracement of the downtrend on the day chart.

Just like in case of the example of the highway count, with regard to forex it’s likewise important that you’ll get a clear view of the big picture. In that way you’ll be able to see everything from a better perspective!

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Related Posts:

  1. The participants in the forex market
  2. The history of the forex market
  3. The different forex charts
  4. See to it that the odds are in your favor!

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