Never Underestimate the Power of a Trend on the Forex Market

by Vahid | Forex Market Analysis and Signals | Sunday, November 8th, 2009

Since last week, we have started to have some Forex market analysis on Forexoma public area. It is a big help for those who like to know how we analyze the market and how our analysis and predictions work. I suggest those who are curious and skeptical, to take a look at the last week analysis and see how they worked:

- EUR/USD Rally - Who Wants Euro to Go Up Against USD?
- How the Forex Market Reacts to Fibonacci Levels?
- A Big Psychological Resistance on EUR-USD Market

It is very easy to talk about different charts and describe how they look like. This is what many websites and weblogs are doing on a daily basis. Something which is not easy, is showing the right direction to those who like to trade and make some money or learn how to trade. Although hundreds of Forex training, Forex market analysis and Forex signals websites/weblogs come everyday, most of those who really like to make a living through Forex trading have not been able to find their way yet. Unfortunately, the more Forex trading becomes popular, the more novice traders get scammed and this is something that happens and we can not do anything about it, because most Forex trading advisory websites are launched by internet marketers who know nothing about Forex trading. Novice traders google for reliable Forex market analysis websites and they find out that they are scammed only when they lose a lot of money and time.

Anyway! The first week of November was under the control of bulls. EUR-USD kept on going up and retesting the broken support line.

It seems EUR-USD is serious to go up and test the 1.5000 level again. As I explained last week, 1.5000 is a strong psychological resistance level, because most people think that EUR-USD is not able to break above this level. So in case they have a long position they close it (they sell) and if they wanted to buy Euro against USD, they will not do it anymore. All these actions causes EUR-USD to go down. So we may see some bearish movement around the 1.5000 level again.

The other thing that we have to consider is the 61.80% Fibonacci level that worked as a strong support line and didn’t let EUR-USD go down. EUR-USD touched the 61.80% level, but it went up strongly after that.

According to EUR-USD daily chart, we may have some bearish reactions and the uptrend support line may be tested again, but then it will follow the upward direction. Bollinger Middle Band is acting as a resistance line right now and it may prevent the price from going up for a while. However, bulls are still strong and will take the control.

Obviously, EUR-USD uptrend is still intact and no reversal signal is appeared on it. Forex market is famous because of the strong trends it makes. A trend on the Forex market can be continued forever and this is where the problem comes. Some people are reversal traders and they like to fight the trends. While they can use the power of trends and make a lot of money, they always look for a chance to go against the trend. I see that most reversal traders have been trading stocks before they start trading Forex and their reversal trading habit comes from their stock trading experience. In stock trading, full time traders try to find a ranging market and buy and sell when the price forms reversal signals, but they get trapped when they come to the Forex market.

Trend is continuous, whereas reversal happens only once. Never underestimate the power of a trend on the Forex market.

GBP-USD also moved as we expected last week. It is about 100 pips to reach the 1.6716 resistance level and we will see some bearish movements there.

Further Reading:

4 Comments:
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Comment by Keith

2009-11-09 04:24:35

Vahid, you are so right.
I am very experienced in trading stocks and I mostly traded the market when it was ranging. The movements in the last couple of years have been no good for my style of trading at all and that is why I started to investigate Forex.
Although the Forex markets do range, I have found that the strategies that I use with stocks just do not work with the Forex market. I do make some profit with trading the ranges, but have had to adapt and will need to have very solid indications to trade a reversal.
It is probably best to just trade the breakouts, but the habit of trading ranges is very hard to break.
I actually quite envy totally newbie traders with no experience that are learning from scratch using your program because they have no previous strategies to unlearn.

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Comment by Vahid

2009-11-09 08:06:15

Hi Keith,

Yes, you are right. With a clear mind from any other system, traders can learn a new system much better.

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Comment by husain

2009-11-10 16:35:00

Hello Vahid,

Can i know what is october performance?

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Comment by Chandan

2009-11-22 06:16:30

Thanks for the nice article. I do sometime stock trading and want to learn about Forex Trading. Agree with you that we should learn properly before investing. I will try it once as I am very much interested.

Regards

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