What is Trending Market
The so-called Trending Market is the price of a currency pair that moves only in one direction, namely whether an uptrend or downtrend. And this price movement is basically a retracement of the previous prices.
A trend usually records a Higher High and Higher Low when moving up (Uptrend) and registers Lower High and Lower Low while moving down (Downtrend).
Lots of forex traders use the major currency (which always pairs with the US Dollar) when forex trading uses this trending market strategy because this pair is very clearly forming a trend compared to other currency pairs.
And when trading using this trending market, the most important thing to note is the market volatility (in this case the price). The more volatile a market is the stronger the trending.
If the stronger or clearer the trending is formed, the greater the chance we get profit because we will be facilitated in conducting market analysis.
Well, the way to find out whether a market is in a trending condition or not, we can use several indicators that have been explained in the previous lesson, among others.
We can use the Average Directional Index (ADX) indicator to find out whether the market is trending or not.
This ADX indicator uses a scale of 0-100 to determine whether the price is moving to form a strong trending or will be ranging (consolidated).
ADX with a value of more than 25 indicates that the price is trending or preparing to form a strong trend. So the higher the value, the stronger the trending .
ADX indicators include lagging indicators and also indirect indicators that will report trending price movements whether it is moving up (uptrend) or moving down (downtrend).
An example is the price chart below, even though the ADX value is> 25 but the price is trending downwards (downtrend)
If you don’t like using the ADX indicator to determine whether the price is trending or not, you can use the Moving Average indicator.
Please open the currency pair chart then select 7SMA, 20SMA, and 65SMA simple moving average.
If 7SMA is above 20SMA and 20SMA is above 65SMA then the price is experiencing trending (uptrend).
Then if what happens is the opposite, 7SMA is under 20SMA and 20SMA is below 65SMA then the price is in a trending condition (downtrend)
It’s easy, right!
The next is an indicator of Bollinger Band, in this lesson we will not explain the details about this indicator.
Display this bollinger band indicator into the price chart which consists of standard deviations 1 and 2. And you will see the area of Sell Zone, No Land, and Buy Zone as shown below.
Sell zone is an area between two lower band lines of Standard Deviation 1 (SD1) and Standard Deviation 2 (SD2). And the price is said to be in the sell zone if the price is really between these two lines.
Buy zone is the area between two bands of the upper line of Standard Deviation 1 (SD1) and Standard Deviation 2 (SD2). And the price is said to be in the buy zone if the price is really between these two lines.
No Land is the area between the Standard Deviation 1 (SD1) line which is a decision area to be taken in the direction of the next price movement.
And it is very easy to determine what the price is in trending.
If the price is in the Sell Zone area then the price is said to be in the Downtrend condition.
If the price is in the Buy Zone area then the price is said to be in the Uptrend condition.