We could say, that the main purpose of technical analysis is to identify ranging or trending conditions in the forex market. Aim of all forex traders is therefore to identify and enter the position at the beginningg of the trend and exit at its very end.
Thankfully, there is a lot of tools, that can help us to achieve accurate position entry and exit. Those tools allow us to open our position in the direction of trend and exit at brink of its reversal.
What tools can we use to identify trend and range in forex
By identifying market formations we can accurately uncover traders psychology beneath the price movement.
Struggle between bulls and bears is represented by specific chart formations. Each formation has its own meaning. Reversal forex formations, as double top in confluence with strong resistance is very good signal for us to enter short (sell), or to exit our winning long position immediately. Proficient forex trader is able to read those little clues along the trendlines. Each one giving him information on whether is trend more likely to continue, or reverse.
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Shape of the candle, body to wick ratio. Candle formation gives us information on hidden chart formations on lower timeframes. It is non-lagging, immediate piece of information and it might be as important as price itself. Learning the secret language of candles will give you continuous information stream on struggle between bulls and bears for market dominance.
Trendlines + supports and resistance zones
Trendlines are vital part of technical analysis. By simply connecting valid two tops we can easily get upper trendline (resistance trendline). Do the same for bottom side of the market and you have a complete channel. It is useful, to draw trendlines also on higher timeframes, as every trend is part of bigger major trend on higher timeframe (get familliar with fractal geometry and Elliot waves). Learn to draw trendlines properly and connect them with any forex strategy to receive more accurate trading signals.
Learn to use trend following forex indicators such as MACD (Moving average convergence divergence), MA (moving averages), Alligator, Bollinger Bands and envelopes. Those are basic and great working tools for trend identification.
Forex oscillators such as RSI (Relative strength index), CCI (Commodity channel index) and Stochastic, can also be used to identify trend/range. Do so by applying slower calculation period and adding additional lines separating values of indicator in the middle. Indicator moving in upper half signalizes uptrend. Add additional lines to separate ranging market conditions.
