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Wednesday, 15 June 2016

The Mind of the Market

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The Forex market is like a complex organism with a lot of moving parts, influences and players (Traders). With all the complexities there are ways for you to understand and trade the market profitable. However, there will be times when you will need to just sit back and watch the market. This may be due to no trading signals showing up using your trading strategy or some global event that has influenced a currency you are looking at. Within this time all you need to do is keep reviewing market conditions, charts levels and currency news.

It's almost as if the market has a mind of its own sometimes and goes in whatever direction it pleases. Well, actually it does. The market can be studied and patterns, historical data and other techniques can be used to understand the mind of the market. With all its moving parts such as central banks, Oil prices and Gold prices the market will move as a combination of these and other factors. Historical data can be used to make calculated decisions along with any medium or high impact economic event. This will enhance your trading range, profitability and trading skill.

Below we discuss a couple of things on how to know the market 'brain waves' and capitalize on its movement to increase your P/L.


First we need to realize the market doesn't normally have a regular pattern. Often it changes the way it way it moves and will throw you off even with a fully outlined strategy. The market fluctuates but you can adapt your strategy for when it goes way beyond its normal movements.

Irregular movements can't be predicted but you can be sure they happen.
Say for instance you are watching a pair on a daily chart and it's been in an uptrend for 3 weeks then it suddenly heads downwards without any definite indication on the chart and then you think a downtrend may start to develop and so you open a short trade only to realize that the pair went right back into the uptrend. Scenarios like this may happen sometimes during trading. It is important that you always seek confirmation based on your strategy. I use 3 indicators and when they consolidate i know i have a high probability trade to enter. Along with the indicators there is support and resistance level, fib levels and chart patterns.

If you think the market isn't providing high probability trades then take a step back from it and just watch a little.

Screenshot showing irregular movement circled in blue. The brown circle encompasses the original trend and after the irregular move down, represented by the blue circle it is returning to the trend.

Economic Events

Economic events can sometimes be fuel to the Forex fire. High impact news depending on the results can drive a currency up or down in a short time. High impact currency news from entities such as the central banks or commodities such as oil have a tendency to put a surge on currencies. A lot of persons chooses not to trade the news due to its unpredictability in moving a currency while other persons play the market with high and medium impact events.

Real Estate reports, Oil prices, Unemployment figures, Interest rate hikes are examples of some high impact economic events that will affect how you trade and how your trade turns out. Be careful

Screenshot showing high impact news among others in the top left quadrant.

Historical Patterns

It isn't recommended that you take past results as future expectations, however historical data is extremely important in trading. Historical data helps show different patterns in the market that normally creates support and resistance ranges. With these ranges you can trade with higher probability of success.

Use Historical data wisely but not as the only reason to enter a trade. support it with price action and indicators if necessary.

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