FX TRENDS & Market Opportunities

Written by Trade Team | 20 August 2009

Assessing and Identifying Trends

To be able to assess an anticipated major trend, it must be recognizable that such speculative transactions such as the volume / open interest increases during the life of a self reinforcing trend in the market. The prevailing market bias is a trend following market which means that the longer the trend persist; the stronger the sentiment becomes the breath of the market.

It becomes an established trend that has to run its full course of path until such time that the market becomes self-reinforcing. When such process has achieved its objective , the opposite direction may well take place after the full leg has taken place. The cross over points would have been achieved and a possible exhaustion can take place. A similar action has taken place like the price comparison and the current major trend of the US Dollar collapsing on the last weeks' closing of the month of July 2009 as a much clearer example.

Where the opening price levels for most of the majors as well as the US Dollar opened in the Asian market with a GAP; which literally mean that it can be a run away gap on the EUR/USD and the GBP/USD that led to the spill over of sentiments that continued towards the European and American sessions. The technical view plus the reinforced market sentiment led to the currencies involved make certain higher price levels at the start of the month for August.

Where one can find that the 1st leg of the wave in the Pound and the Euro from their previous lower price levels had a full run of the market. It is just a matter of accepting the fact that once the increased volumes does occur, the increase volatility will take place has they happened with both currencies making an average trading range of 150 - 200 pips on both sides from the opening price levels. When this happens expect that the price swings can easily trigger stop-loss orders which obviously would not sustain a substantial floating loss for that matter.

To measure the growth of capital infusion within a trend is through the presence of increased volumes in open contracts found in the financial futures market and serves as an indicator versus the cash market. As a result of trading the foreign exchange market, any such rewards generated by trend following mechanism tend to increase more capital flow which provides more fuel towards market sentiments. With this scenario, it is very attractive to hold financial assets in an appreciating currency as an investment that gives greater value in terms of return and still be considered liquid assets in the form of another currency contrary to the depreciating currency. The co-relationship has to be fully understood, wherein the interest derived from the other may literally be smaller compared to the gains achieved while being in the spot FX market price fluctuation. This way it relatively build up equity over a period of time exposed and properly covered in the market.

A self-reinforced trend plus the persistence of the market bias would prevail over any technical indicators even before the facts happens. This means that over a period of time in a major wave formation; best utilized by the Elliot wave formation and principles practised , where the full leg could be expected. These are all visible by the legs of a strong wave in either direction that can be pin-pointed in an overall view and analysis of the market. This takes sometime and it is equally important that such due diligence on research be made so that trading skills and market analysis could be well develop along the way.

For those who refuses to see, accept and contradict a major trend as a contrary outlook and / or analysis on the facts that may prove to do otherwise and would pay so dearly for doing so. The few ones who manages to survive and stay afloat with the market would reap its rewards further by trend-following the market while it is at its best with the increase in volumes before the volatility increases. When it happens, participants tend to stay out, watch and wait it out of the volatile market conditions because of the increased risk of loss rather than winning in the market place.