The Trending Market
The Ranging Market and
The Break Out
Lets discuss the Trending Market first.
TREND AND TRENDLINES
We have a saying in the Stocks & Shares and Forex Trading circles, "Trend is your Best Friend" or "Make Trend your Friend". This means you should always trade in the Direction of the Trend.
There are 2 types of Trends, The Up Trend where the Prices are going up and the Down Trend where the prices are falling down.
We always Buy in an Uptrend and Sell in a Downtrend to make a Profit. This means Buy at a lower price and Sell at a higher price.
Here are the Uptrend Candles: (The Market is going up)
And here are the Downtrend Candles: (The Market is going down)
You can either visually observe where the trend is or draw trend Lines. I have drawn an Up Trend Line below the Candles showing that the Market is going UP.
And here are candles with a Down Trend Line:
The RANGING MARKET
The figure below shows the Ranging Market.
It means that the prices are moving within a Range.
The Price goes up and then comes back down and then goes back up and again comes down, it keeps doing this again and again withing a range.
Where the price doesn't go up further, we call that point as the Resistance Level, meaning that the Market is Resisting going up any further and where the Market goes down and bounces up again is called the Support, meaning that the Market has a strong support and is not letting the price go further down.
This Support and Resistance Levels are very Important in Forex Trading.
SUPPORT & RESISTANCE and The BREAKOUT
Look at the chart above. You will find 2 green lines. These are the Support and Resistance Lines. Resistance means that the price resists going up. This is sort of a sealing. Whereas Support means that the price is supported from falling below this price.
The Buyers (Bulls) find that the price at the support level is attractive enough to buy. The Sellers (Bears) do not wish to Sell below this price as it seems very unattractive price to them.
Thus a tussle goes on between the Buyers and Sellers and the price remains within these Support and Resistance Lines. This is also called a Channel. The price stays within the channel and it is a very good place to buy and sell as long as the price remains within the channel going up and down. It is also called whipsaw.
When there are more Sellers than Buyers the price falls down. We can see whats going on in the market by studying the charts. When the Support line gets broken as in the above chart the Sellers want to get rid of their holdings and there are not that many Buyers in the Market. Thus the price falls, the Support Line is broken and it is a good time for us to Sell Short. (Sell Short means that you do not hold any holdings in hand but you sell in the hope of buying later at a much less price in order to make a profit).
Similarly when the number of Buyers exceed the number of Sellers the price goes up and we can see this happening on the chart as the Resistance gets broken and the Market starts moving up. This is a good time to Buy in order to Sell at a higher price later on in order to make a profit.
Here is a Chart which shows the Resistance getting broken and the price moving up:
By now maybe you are thinking... Wow! Its so simple and easy to make Millions!!!
But as a matter of fact its not that easy otherwise everybody would become a Millionaire within months. The reason being that we get Whipsaw in the Market. The prices keep going up and down and we do not know exactly when there is going to be a great Trend Up or Down, we therefore use some Indicators to indicate and give us signal when to get in the Market and when to Exit with a Profit.
In your next Lesson, you will Learn all about Indicators and How to Read them.
Keep watching for your Next Lesson...
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