How to Determine Market Direction using technical analysis

Updated: Sep 23, 2018

Determining the market direction of a currency pair is the first order of business when preparing to open a position, the first question a forex trader is likely to ask themself is "do I buy or sell this pair?"

In many cases, a trend can be clearly identified. Think of a trend as the equivalent of a diagonal support and resistance. If in uptrend, expect to see higher highs, and higher lows consistently and in a downtrend, lower lows and lower highs ( as long as it has formed at least 3 cycles or points). Consider such market conditions as perfect trading oppurtunities.

BUT.. When do I enter?

Even in such conditions, its not always a good time to enter a trade, let me explain..

Currencies differ, some of the more volatile currency pairs could hold a trend cycle of 80-100pips (NZD,AUD etc) this means even if following a trend, buying at the start of a pullback could set you back negative 100pips before the trend continues, this would take out a stop loss and lose you money & a good trading opportunity.

Patience is virtue

If spotted correctly, pullbacks can be used instead to enter the market, allowing a safer and more profitable trade. Allow me to demonstrate..

forex trend line explained

Lets use the GBPCHF daily as an example, buying at the next lowest point allows a better entry, and much higher profits. Wait it out, and you'll almost certainly gain a better entry point.

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