Dealing With Trading Ranges In Forex

I have often heard that it is easier to analyze and speculate in financial markets which trend. Many may have even heard of the saying the trend is your friend. In the case of an uptrend, traders would focus on buying. When the price is showing the pattern of a downwards trend, it makes sense to look for shorting opportunities.

I’ll admit, when a market is trending hard it does tend to make sense to play the probabilities in your favor and go with the flow, rather than against it. However, in the world of Forex trading and speculation, currency pairings don’t tend to trend quite as much as we would like. Typically, the longer trends can be found in global equities markets and specific commodities as well. The currency market will tend to go through longer periods of ranging activity from time to time and FX traders should be prepared to deal with this accordingly.

The Dynamics of a Currency Pairs on Price

The nature of currency markets is that we always trade FX in pairings, putting one currency against another. Just this dynamic alone makes it practically impossible for any major pair to go to zero anytime soon. In a worst case scenario, a pair could have a price quote of zero hypothetically, but that would mean one would have to go to zero against the other which is unlikely to ever happen given that most worldwide economies are part of a larger global picture which impacts them all in similar ways.

That said, this does not mean that individual economic factors can’t have big repercussions for nations and the currency. Just remember how the Brexit vote in the summer of 2016 hit the British Pound for a devaluation on over 20%, practically overnight. Yet here we are more than 3 years later, and the pound has rallied from those previous lows with a slight recovery. In the longer term, say a year to a decade, we are more likely to see general ranging in the FX market, more so than other assets classes, simply due to the nature of there being 2 currencies in all pairings.

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