Aug 5, 2008

Trading With The Trend And Consolidation Patterns | ForexGen

The FX-market will develop distinctive trends from time to time, as a result of the underlying fundamental factors which make up each currency within the pair traded. Often times these trends occur as one currency offers a significant higher interest rate, which continues to draw investment capital out of another other currency with significantly lower rates. In the midst of these long term trends, the market may establish a number of consolidation patterns. During these range bound market conditions, it is important to keep in mind, the direction of the prevailing trend, as the market has the tendency to break out of these ranges, in the same direction as the overall trend. We can see the following (daily) chart; the NZDJPY recently broke above an ascending triangle pattern, to continue its long term trend; to the upside. Therefore, when a clear trend (to the upside) exists, and the market establishes a range bound condition, traders may choose to 'go long' just above support with protective stops placed below support. Short term traders may choose to take profits inside this range, as long term traders may hold on to their position with the anticipation the market will eventually breakout to higher highs. In a down trending market, traders may opt to sell short just below resistance with the same long term outlook in mind. Best of luck in all your trades!!!