What is your Forex trading style? Do you look for the long term trends and look to hang in there and take advantage of strong momentum moves? Or are you more likely to go against the grain and trade in the opposite direction of the prevailing trend? Whatever style of Forex trading you choose you'll find it helpful to understand the differences.
A trend can be defined as price movement in one consistent direction. If this direction happened to be up the move is called a bullish move. If the direction happens to be down that is called a bearish move. When the market moves sideways, it is said to be in a trading range, or range bound.
The fact of matter is that the market basically does one of three things, it moves up, it moves down, or it moves sideways. Each of these three market conditions have plenty of opportunities for profit.
A trend can be traded in any number of ways and those ways can be divided into two categories of trading. The two categories are trend following and countertrend trading. Traders who specialize in trend following trading methods are often called trend followers. Trend followers tend to want to go with the flow. Trend followers believe that the path of least resistance to profits is through following a beginning or established trend. This type of trader wants to buy when the market is going up and sell on the market is going down. The philosophy of trend followers is that “the trend is your friend”.
The other type of trader who uses trends is the countertrend trader. The countertrend trader looks for signs of weakness in established or beginning trends. These traders are trying to catch a trend reversal in hopes that the established trend will begin to move in the opposite direction.
A trading range is defined as a markets movement between two definable prices. The top price of a trading range is often referred to as a level of resistance. It is called a level of resistance because it appears to “resist” the penetration of prices to higher levels. At the opposite end of the scale areas a price is referred to as level of support. This price is named as such because it has “supported” price levels over a period of time. “Range traders” or “support and resistance” traders as they are often called, look to sell the market near or at resistance levels and by the market near or at support levels.
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