Forex Scalpers should always identify market conditions before trading
Markets can be broken into three major environments. Trends, Ranges, and Breakouts
Once identified, traders can select the appropriate strategy that fits present price action.
Before any scalper places their first trade it is important to identify the markets current technical condition. Every day will bring a new price action, and it is important that we are using the appropriate trading strategy to meet the day’s challenges.
Today we will review the three most common market conditions presented
to Forex traders. All of these conditions can be identified by
identifying key points on your chart through basic technical analysis.
Once we have a grasp on market direction, we can then look to better
implement the scalping strategy of our choosing.
Price Ranges
Identifying a trading range is the first market condition we will
review. A range occurs when price is moving virtually sideways which
can also be associated with channel trading. Even though the market
doesn’t have a clear direction, it can still provide opportunities for
diligent scalpers once one is identified.
The first step to finding a range is to identify support and resistance
on your chart. These pricing levels can be found by connecting a series
of recent market highs and lows using horizontal lines. Resistance is
the current ceiling on price and Support is defined as price actions
current floor. These points will be the basis for our strategy, and
should be clearly marked on our chart before moving further.
As long as a range holds, scalpers can take a neutral market stance.
This means they can look to take both buy positions near levels of
support and sell look to sell levels or resistance.
Strategic Breakouts
When market ranges end, we are most likely to encounter a breakout. A
breakout market occurs when price moves through or “breaks” an
identified level of support or resistance. Immediately following a
breakout, traders can look to take advantage of scalping opportunities
with the fresh market momentum.
Below we can see a breakout from the previously identified range on
the USDCAD 30 Minute chart. Once the previous price ceiling broke,
traders had the opportunity to buy the market. The process of trading a
breakout can be simplified through the use of an entry order. These
orders will remain pending and execute once the price selected becomes
available for trading.
It should be noted, in the event of price breaking a level of support,
this process can be replicated. However, with new downward momentum
scalpers will look to sell the market.
Trending Markets
Breakouts normally signal the beginning of a market trend. The Forex
market is known for its propensity to continue moving in a singular
direction for an extended period of time, and once found scalpers can
trade in the direction of the trend.
The process of identifying the trend begins with the identification of a
series of swing highs and lows. A swing low is identified by a current
valley on a graph, which normally represents a temporary low. Swing
highs will identify temporary peaks in price action. If a currency pair
is making a series of higher highs as in the USDCAD 30Minute chart
below, you are probably looking at prices advancing in an uptrend. This
is a strong signal for scalpers to begin looking for fresh buying
opportunities.
It should be noted that markets are just as prone to declining in
downtrends. In the event that a chart is printing lower lows and lower
highs, scalpers should then look to sell the market with the charts
current direction.
Now that you are a little more familiar with various market conditions, we can proceed to look at some of the different topics that are vital to Forex scalpers.