Trending markets: The bare essentials
October 25th, 2006 by Justin
In a world where a charting package is considered inadequate if it doesn’t have 200+ indicators, I find that basic charting and observation of price action simplifies the process. The most basic ideas allow information on the market participants’ sentiment to shine through. Reading market sentiment is the essential premise behind technical analysis, and basic patterns reveal more than any indicator can about sentiment.
I watch for waves or swings in the market to identify whether a market is trending or not, and in which direction. For intraday trades, this will limit my strategy to trades that fit within broader conditions. The “dealer” (i.e. 4-hour) chart of the EUR/USD below reveals that the euro has made two higher lows and one higher high in recent months. The horizontal lines at extreme points indicate when these have occurred. Range traders in the euro appear to have the upper hand for the moment, then, as a solid bottom has been carved out above the 1.25 figure. If the dollar bears have enough momentum to push the pair solidly above 1.2650, another higher high will be formed.
