A forex currency can generally be seen as either in a trending stage or in a consolidation phase. Normally this should be easy to explain, but sometimes an online Forex trader needs some help to see these stages quickly and easily. Complicating matters further is the fact that one currency can easily be biased over a period of time (daily) and can be traded sideways over another (within four hours).
Most Forex traders have a favorite trading technique that works very well in either the side or trend market. In rare cases, this is the case with both appliances. For this reason, it is important for a trader to regularly assess whether the market is trending.
A technique often used by experienced traders applies very moving averages on the same chart. It will normally average seven to eight moves. Different colors can be given to make them more visual and defining. One of the most popular parameters is to set the first moving average for three periods and increase the next moving average by 3. These moving averages are three, six, nine, and so on. These are simple and can be based on price proximity. You can change these settings as you wish as long as you apply the latest combination consistently to all your forex charts.
After setting them up, the next step is a blank screen, so you can only see moving averages and nothing else. Forex trading candlesticks are distracting in the background. The easiest way is to put your diagrams in a line format and then paint your line format in the same color as your graphic background. If your chart is white, color your line graphs white. Now you need to have a table showing only the color moving averages for the time frame you are using for the installation.
We are now ready to assess the phase of the market, which is an easy part. If all moving averages are up or all down, this indicates a trend in the market. As they move further and further away, the market shows a very strong trend. If they all point in the same direction and start trading closer to each other, then the strength of the trend decreases. It should be very easy to identify them all.
If moving averages begin to overlap, this indicates that the market has begun to consolidate and is trading sideways or may be reversing. At this stage, it can be assumed that the market is trading sideways until all moving averages start moving in the same direction again.
There is a special time when moving averages trade very close to each other and begin to strengthen as they begin to form knots or single colors. These conditions mean that all traders in the market agree with the current price of the currency. You will only need to bring a small message to the Forex Market to break this situation and create a volatile breaking price movement.
This technique can be used at any time. From one minute schedule – to monthly schedules. I hope you will start using this trading concept and technique to your advantage the next time you trade.