I went hiking in the Rocky Mountains a few years ago and on one hike I came across a place that reminded me of one of my trading tips. I was standing on a small log footbridge, around 10,000 feet above sea level, staring at a stream seeking its way around rocks. It reminded me of one of my forex trading tips. Let me explain as it will help you to visualize how trends develop and how the forex market is constantly seeking the path of least resistance.
On the hike, we passed a rushing waterfall, then saw water cascading down rocks above it as we trekked higher and then came to a gentle stream that fed the water below. I stood there on a small log footbridge staring at the water flowing gently downstream, winding its way around rocks as it looked for the path of least resistance. This is where I was reminded of one of my Forex Trading Tips
Markets are like a river flowing downstream constantly looking for the path of least resistance. When it finds a clear path the pace of flow accelerates. This is a way to look at trading…
The forex market is on a constant search for the path of least resistance, whether it be on the up or downside for a currency. A trend starts like the gently flowing stream, picks up momentum as with the cascading water, and then reaches a climax when it hits the waterfall.
It is often not a clear path, as a currency can get overbought or oversold and then either consolidate or retrace when it runs into support or resistance. During these times the market may look for another currency to buy or sell where the path has less resistance and focuses its attention there. It may come back to the first currency when the market gets more balanced and there is less resistance to resuming the trend.
So, think of a trend like the journey a river takes. It starts out slow as with the gently flowing stream, builds momentum like the cascading water, and reaches a climax like a waterfall before settling down when there is more resistance. It will help you put the price action in perspective in whatever market you are trading.
As an illustration, look at this 4-hour USDJPY chart from today to see how it relates to a gentle stream picking up steam and then forming a waterfall.
Jay Meisler, co-founder, www.global-view.com
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