Fig/. 1: AUDUSD Daily Chart

Trend

The first step we take when looking for trade setups is to identify in what market we are. Is the market trending, or going sideways or are we in a choppy market?

Basically, there are three ways we use to identify the market type we are in:

• Obvious Patterns
• Price Swings
• Moving Averages

Obvious Patterns

The first way to identify the long-term market trend is to simply zoom out the chart and see how prices are moving. Are they clearly going up, or down, or sideways? Do not try to be fancy here. The most obvious direction will give a good first indication of the long-term trend (see fig. 2).

Fig. 2: USDCAD Daily Chart

If we analyze the chart a bit more we can see that the following story developed in the past year for the Forex pair USDCAD (see fig. 3): Overall the market stepped higher with a period of consolidation in November and December of last year. Although the long-term trend is clearly up, the pair has been moving lower in the past three months, so the mid-term trend is down or bearish.

Fig. 3: USDCAD Daily Chart

Price Swings

The second way to identify the market trend is to look at the highs and lows of the price swings.

• Trending markets will make higher highs and higher lows in up-trending markets and lower lows en lower highs in down-trending markets See fig. 4. If we zoom in on the previous chart and analyze the mid-term downtrend, then we see almost consistent lower highs and lower lows were formed.

Fig. 4: USDCAD Daily Chart down-trend