Trading with the Trend and Consolidation Patterns

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The forex market will develop distinctive trends from time to time, as a result of the underlying fundamental factors which make up each currency within the currency pair traded. Often times these trends occur as one currency pair offers a significant higher interest rate, which continues to draw investment capital out of another other currency pair with significantly lower rates.

In the midst of these long term trends, the market may establish a number of consolidation patterns. During these range bound market conditions, it is important to keep in mind, the direction of the prevailing trend, as the market has the tendency to break out of these ranges, in the same direction as the overall trend. We can see the following chart, the NZDJPY recently broke above an ascending triangle pattern, to continue it's long term trend; to the upside. Therefore, when a clear trend exists, and the market establishes a range bound condition, forex traders may choose to 'go long' just above support with protective stops placed below support. Short term forex traders may choose to take profits inside this range, as long term forex traders may hold on to the position with the anticipation the market will eventually breakout to higher highs. In a down trending forex market, forex traders may opt to sell short just below resistance with the same long term outlook in mind. Best of luck in all your forex trades!!!

Adam Rosen, FX PowerCourse Instructor
FXCM

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