Trends, trend reversals and trading characteristics of price action trading in the foreign exchange and gold trading markets
1. How to identify trends
Uptrend:
Characteristics: Prices form higher highs (Higher High, HH) and higher lows (Higher Low, HL).
Trading direction: tend to be long, following the market's upward momentum.
Trading strategy: Go long when the price pulls back to the original resistance level and turns it into support level (Resistance turned Support).
Downtrend:
Characteristics: Prices form lower highs (Lower High, LH) and lower lows (Lower Low, LL).
Trading direction: tend to short, follow the market's downward momentum.
Trading strategy: Short sell when the price pulls back to the original support level that turns into resistance (Support turned Resistance).
2. How to identify trend reversals
There are three common types of trend reversals:
From an uptrend to a downtrend:
Type 1: The price forms a lower low (LL), signaling a trend reversal.
Type 2: After forming a lower low, a pullback forms a lower high (LH), confirming a trend reversal.
Type 3: Formation of a lower high (LH) followed by a breakout to the downside, forming a lower low.
From a downtrend to an uptrend:
Type 1: The price forms a higher high (HH), signaling a trend reversal.
Type 2: After forming a higher high, a pullback forms a higher low (HL), confirming a trend reversal.
Type 3: Formation of a higher low (HL) followed by a breakout to the upside to form a higher high.
3. Combining key levels with trend reversals
Use key support and resistance levels in conjunction with price action:
Example: GE stock daily chart. The price downtrend encounters a reversal signal (higher lows and higher highs) at a key support level, creating a long opportunity.
4. Ranging Market
Characteristics: Prices fluctuate between the same highs and lows, and the direction is horizontal.
Trading strategy: You can short at the market's highs and go long at the market's lows.
5. Fresh Trends vs. Trend Expiration
Fresh Trends:
Enter the trade early in the trend and capture the majority of market moves.
Advantages: strong momentum and high transaction quality.
Trend Exhaustion:
After a large price movement, the momentum weakens and the price may move sideways or pull back.
reason:
There is insufficient new buying and the market is losing momentum.
Traders who have made a profit start to close their positions, pushing prices in the opposite direction.
Features: The transaction quality is reduced, the trend is not 100% reversed, but the risk is increased.
Summary of Price Action Trading in Forex and Gold Trading
Trend Trading: Follow an up or down trend and trade pullbacks with the help of key support and resistance levels.
Trend Reversal Identification: A trend reversal is confirmed by the formation of a new high-low structure.
Fresh trends first: enter at the early stage of the trend to ensure high-quality transactions; avoid risks in the trend exhaustion stage.
Consolidation market: trade in both directions and seize opportunities at market highs and lows.
The document focuses on price action analysis and trend identification, providing traders with clear entry and exit strategies.
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