Trading Environments for Beginners

February 1, 2006

As an absolute beginner, I’ve always found it difficult to understand what everyone meant by trending markets, ranging markets, swing markets, etc. Now that I’ve had about 6 months to digest some of this information, sometimes I forget to really identify the market environment a currency pair is trading in.

Here are 4 types of markets that you will encounter as a forex or any other securities trader:

1. Trending Market

Defined: Overall Direction of pair is moving up or down.

Goal: Join the move early and hold the position until the trend reverses!

2. Ranging Markets

Defined: Currency pairs that are trading in sideways ranges or channels

Goal: Sell at top of channel or buy at the bottom of the channel

3. Swing Markets

Defined: Catching major trends but getting in later than most regular trend followers

Goal: Wait for pull back and then buy or sell in direction of trend

4. Volatile Markets

Defined: Market that has no particular direction and has very large swings and reversals

Goal: Look to take advantage of break-outs and large spikes