Trading in a Trending Market

In a trending market, the price of the pair will move in one direction clearly. Price could go up and down from the trend in lower timeframes, but longer timeframes should clearly show the trend in a trending market condition. In trend based trading strategies, usually the major currencies are picked. Most of the time, the chosen pairs include US Dollar as one of the two currencies. The high volatility and rapid action related with the US Dollar is the primary reason of such tendencies.

Liquidity is very important in trend based trading. The more liquid a market is, the more action will come out of it. And the more movement a pair will make, the more trading opportunities will be created. In order to find out whether a market is trending or not, some tools can be used. ADX is a commonly used trending market indicator. Being scaled from 0 to 100, the indicator signals a trending market whenever the reading is more than 25. The strength of the market intensifies with the increase of the reading in ADX.

Being is a lagging indicator, ADX does not provide any hint about the future trend, it only provides information about the strength of the current trend. Other indicators like moving averages and Bollinger bands are also used in trending markets. You can cross-check the validity of a trend by applying two or more indicators at a time on the chart. Trending market provides some excellent opportunities for instant profit.