Understanding Market Direction
Most traders often overlook the important aspect of assessing market direction in foreign exchange. It is important to understand the predominant foreign exchange movement that the market has been moving in over at least for the last 6 months, whether you are entering a market at a turning point or boarding a fast-moving trend. In this article, we'll take a look at the market direction in foreign exchange online.
Now that market trends tend to be shorter, the shorter criteria might be more appropriate to follow. Generally, investors make money in up markets or down markets. However, in reality, there are three market directions in online foreign exchange. The market can move-up, down, or sideways. It has been observed that for about 15 to 20 percent of the time, the markets tend to trend-move up or down significantly. As a trader, one needs to be able to assess when those conditions will occur. Many traders have systems that constantly keeping them updated about the market. Accepting sideways as a condition of the market, will leave you with a system that will keep you out of the market for the 70 percent of the time. Hence, for the 70 percent of the time, you are not likely to make money. The person who is going to be always in the market is going to spend a lot of time in sideways market direction in foreign exchange world, which could mean losses and high commissions.
As we trade currencies in pair, having two currencies would obviously mean that, there are two different economies involved in each pair. We have the counter currency and base currency making the pair. For example, in the EUR/ USD, we have EUR representing the European economy and USD representing the US economy. Therefore the market direction in foreign exchange of this pair “EUR/USD” is determined by what is happening in both the economies- the European and the US. If the economic condition of US economy is bad, it would mean that the US dollar is weak. Hence, you will be selling it and vice versa. Thus the economic condition of the two different economies, involved in the currency pair, will determine the market direction in online foreign exchange of the currency. The simple general rule to follow is to buy the stronger currency and sell the weaker currency.