9 Things to Look Out for When Forex Trading

9 Things to Look Out for When Trading Forex

1. What is the value of a pair ?

When trading Forex it is easy to want a trend or a range and to look for them, for evidence of their formation and end, and attempt to get in on one. But Forex may not work out this way, ranges may turn easily into something completely different. Volatility can change and alter direction. But what may be helpful is to see what value a pair is relative to the big figures above and below.

This kind of trading, unlike looking for ranges or trends, does not use an assumption that a pattern is going to happen which can be traded on. Rather it looks for changes that may happen which can alter the direction, momentum and volatility of a pair. Value can make sense of movement which change trends and ranges.

2. What is happening in the equity market ?

Well structured trends, which most certainly do happen, may be a consequence to some extent of action in other markets, for example the equity market. This can apply for USD/JPY and EUR/USD, with reference to the US stock market and can help make sense of trends which come from nowhere in the Forex market. And it can make sense of ranges, which happen after the trend ends, but not to predict them.

3. Is the pair about to retrace ?

In a trend, retracements can be expected. So if a pair is moving strongly in one direction, this does not mean it will continue doing so even if the overall direction continues. This is one of a number of reasons why one tends to buy just as the market goes down or sell just as the market goes up. So strongly directional action can, even though it looks like a strong move which will continue, in fact be a sign of a reverse coming. But because retracements are temporary moves back a significant reversal may not happen.

4. Is the trend coming to an end ?

This is tricky area because trend ends looks like retracements, and the pair can easily move out of one and continue onward. But trend ends do happen, and they can trap a trader in volatile moves. An example of this can be found by looking at a monthly chart for Gold or Silver. The volatile moves after the great directional moves up show how the metals still tried to keep going as they fell back, creating extensive candles that were in fact leading into a long downward move.

The example of a well structured directional trend with retracements coming to a volatile end can can be seen played out daily in different forms but similar ways in the Forex market.

5. Is there a news announcement coming up ?

News can move the market in ways it usually does not move. For example, US interest rate decisions can result in very rapid directional and volatile moves in pairs like EUR/USD and USD/JPY which no trader wants to be on the wrong side of. It is really a good idea to check an economic calendar.

6. Is the market volatile ?

Why is this important. Because volatility, while it is by definition very difficult to trade, can be a precursor to more tradable action. It can be a sign of change that the market will move with when it calms. There are indicators which say they measure this, but it can also be examined by eye on the chart, looking for equal and opposite candles (does not have to be exact) and unusual moves up and down close together.

7. Is the market at a big figure ?

This follows on from 1, but it is something which deserves its own mention. This is because the big figure can alter direction and volatility and can do it again and again as the pair moves up and down within it and through it. The region around a big figure can have an effect as well as the pair approaches it, maybe reverses back, perhaps pushed over and falls back again. This can create a pattern of moves around a big figure before the pair moves through it, if it does.

8. Is anything happening ?

Pairs have quiet times which can happen after market closes. They can also be stuck in moves perhaps because they are near a big figure, which are just moves up an down, not quite volatility, but not that quiet either. It may be the case that stripped off all other factors, Forex moves mostly like this. But other factors are there and Forex can enter moves which are directional and strong. But before and after they may not move like this at all.

9. Are major markets opening or closing ?

Especially with EUR/USD and USD/JPY, market open and closes can affect the movement of Forex pairs. Trend may happen in the run up to market open, and trends may end or alter as the market close.

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