forex #8

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"A rising tide raises all ships" ... Or ...
How To Determine if The Trend is truly
your friend.
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As we explained yesterday, the basis behind using technical
analysis is to find trends when they first develop so you
can ride the trend until it ends. The foreign exchange
market is a very STRONG trending market and is, therefore, a
place where technical analysis can be very effective.


But, as sure as the sky is blue, we still know and meet
traders every week who still end up buying (being "long")
while the currency pair is in a basic downtrend, or selling
short when a market is in an uptrend.


The key here is this: (it's so simple, some want to overlook
it or "argue" with it).


Use as many technical indicators as you want, or create a
personalized trading strategy based off a combination of
indicators, to RECOGNIZE THE TREND. In other words,
professional FOREX traders try to identify the major trend,
the intermediate trend, and the short-term trend and then
construct their trades in that direction, based off how long
their rules allow them to hold a position.


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"We know that prices move up and down. They always
have and they always will. My theory is that behind
these major movements is an irresistible force. That
is all one needs to know. It is not well to be too
curious about all the reasons behind price movements.
You risk the danger of clouding your mind with
non-essentials. Just recognize that the movement is
there and take advantage of it by steering your
speculative ship along with the tide. Do not argue
with the condition, and most of all, do not try to
combat it." -- Jesse Livermore
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So, what is Mr. Livermore - one of the most colorful,
flamboyant and respected market speculators of all time -
telling us?


In our terms, he's saying: If the action of the market shows
your judgment to be correct, the successful trader 'stays
with the market' and endeavors to make the maximum profit on
each trade, according to his/her risk-to-reward / equity
management rules. If and when the market goes against
him/her, the smart trader will take profits and get out. In
a narrow market (see definition below), when prices are not
going anywhere to speak of, but move within a narrow range,
there is no sense in trying to anticipate when the next BIG
movement is going to be - up or down.


What Mr. Livermore is saying is to watch the market and see
what the market is telling you about upcoming trends. Never
argue with the market, or ask it for reasons or
explanations.


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The market often display's some very familiar patterns of
price movement. Once a pattern is established, it becomes
the most probable course of future price action until the
market changes.


There are two types of markets which will become important
for you to identify; trending and trend-less. Each market
type has two specific patterns which you will also notice
over time.


These market types and patterns are defined as follows:


>>> Trending - Steady elongated price movements with less
than a 45-degree angel with occasional pauses, profit
taking, or resting periods.


In a Trending market, you have:


- Uptrends - A pattern of higher highs and higher lows.


- Downtrends - A pattern of lower lows and lower highs.



>>> Trend-less - Erratic price movements which are often
steep (greater than 45 - degree angle) and cannot sustain
and therefore must reverse. Although the movements can move
many points in a short period of time, they often result in
very little net price movement over time.


In a Trend-less market, you have:


- Choppy - An erratic pattern of higher highs and lower
lows.


- Sideways - A narrow pattern of lower highs and higher
lows.


While up-trend and down-trend days can offer excellent
trading results, choppy markets often create stop outs,
while sideways markets produce for little in either
direction.


Your trading objective is to get into a trending market and
ride until you make our target objective.


We cover many Trend Trading Strategies in our book, "Forex
Surfing & Forex Sailing" -- you will learn how to identify
and draw your own channel trendlines, support and resistance
lines, triangle patterns, chart key top and bottom
formations, etc. (just head on over to RapidForex.com to
learn all about these amazing courses).