Trending Days in Currency Trading

Over the past two days I've been explaining "trading days" in the foreign currency exchange. Today I'm going to explain the procedure for attempting currency trading on "trending days."

Trending days, in contrast, are characterized by the following external events and conditions:

1. A fundamental announcement is released during the session.
2. Price movement is aggressive (fast).
3. Market movement (volatility) during the session creates large trading ranges of 120 to 300 pips.
4. Prices don't close near the session's opening price.
5. Price movement during the session creates an uptrend or a downtrend.

Upward Movement on a Trending Day in currency trading

Downward Movement on a Trending Day for currency trading

Currency Trading on a Trending Day

If you plan to day trade currencies on the trending day, cancel and replace on a 30-minute forex chart. There are two currency trading strategies on a trending day: the first is to trade the straddle (when the session's fundamental announcement is preceded by consolidation).

The second is to trade a convergence (when the session's fundamental announcement is not preceded by consolidation). Refer to our earlier discussion of trading the straddle for the why's and how's of that type of trade.

Trading a convergence on a trending day is similar to trading a convergence on a trading day (except that you will not see the formation of a bell curve on a trending day).

Begin at the anticipated release of the fundamental announcement – that's where you will expect that market to break into a downtrend or an uptrend. Look for consolidation to make sure that you should not be trading a straddle – if there is no consolidation, you'll trade the convergence. Draw your inner, outer, and long-term outer trendlines.

Next set your Fibonacci lines based on the latest price swing. Based on your trendlines and your Fibonacci numbers, do you see a possible convergence? If equity management allows, trade the convergence in the direction of the trend.

If the fundamental announcement reverses the current trend, your losses will be confined to the distance between your entry and  stop loss order. In addition to using the trendline and Fibonacci numbers to set up your trade, you can also use your technical indicators (MA crossover, MACD, etc.) to help you anticipate the market's movement.

Rules for Currency Trading on a Trending Day

The general rules for currency trading a convergence on a trending day are:

1. Locate the point at which the fundamental announcement will be released. Plan to create your market order 15 minutes prior to the fundamental announcement.
2. If there is a fundamental announcement planned for the trading session, but the market is not in consolidation prior to that announcement, you'll trade a convergence (if the market is in consolidation prior to the announcement, you'll trade a straddle, described earlier).
3. Find and draw all your trendlines (inner, outer, and long-term outer). This will help you determine if the market is trending up or down, or if a trendline has been broken.
4. Locate the price at which you anticipate the market will bounce (at the trendline and/or one of the Fibonacci numbers). If the anticipated trendline bounce and Fibonacci bounce are located at the same price, you will trade a convergence. 15 minutes before the fundamental announcement is released, place an order to buy or sell the convergence in the direction of the trend.
5. Find the last level of support or resistance to determine where to place your stop loss order.
6. Practice sound equity management. If you can't afford the potential loss (the loss you would incur should the market reach your stop loss order), don't make the trade.
7. Create a trading plan. Trade the plan.

By understanding the market's likely movement on a currency trading day and on a trending day, you can prepare yourself to make more solid, predictable trades.

The principles you use to make your trades are largely the same no matter what kind of session you're in (e.g. trading a trendline bounce, Fibonacci bounce, a convergence, a candle formation, or technical indicator) but having an idea of whether the market is going to move slowly, closing near the open or move aggressively downward or upward can help you immensely in making consistently profitable trades.

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