LESSON #8:

"A rising tide raises all ships" ... Or ...  
How To Determine if the Trend is truly your friend. 

 As we explained yesterday, the basis behind using technical analysis is to find trends when they first develop so you can ride the trend until it ends. The foreign exchange market is a very STRONG trending market and is, therefore, a place where technical analysis can be very effective.  

 But, as sure as the day is blue, we still know and meet traders every week who still end up buying (being "long") while the currency pair is in a basic downtrend, or selling short when a market is in a uptrend.  

 The key here is this: (it's so simple, some want to overlook it or "argue" with it).  

 Use as many technical indicators as you want, or create a personalized trading strategy based off a combination of indicators, to RECOGNIZE THE TREND. In other words, professional FOREX traders try to identify the major trend, the intermediate trend, and the short-term trend and then construct their trades in that direction, based off how long their rules allow them to hold a position.  

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"We know that prices move up and down. They always have and they always will. My theory is that behind these major movements is an irresistible force. That is all one needs to know. It is not well to be too curious about all the reasons behind price movements.  You risk the danger of clouding your mind with non-essentials. Just recognize that the movement is there and take advantage of it by steering your speculative ship along with the tide. Do not argue with the condition, and most of all, do not try to combat it."

-- Jesse Livermore

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 So, what is Mr. Livermore - one of the most colorful, flamboyant and respected market speculators of all time - telling us?  

 In our terms, he's saying: If the action of the market shows your judgment to be correct, the successful trader 'stays with the market' and endeavors to make the maximum profit on each trade, according to his/her risk-to-reward / equity management rules. If and when the market goes against him/her, the smart trader will take profits and get out. In a narrow market (see definition below), when prices are not going anywhere to speak of, but move within a narrow range, there is no sense in trying to anticipate when the next BIG movement is going to be - up or down.  

 What Mr. Livermore is saying is to watch the market and see what the market is telling you about upcoming trends. Never argue with the market, or ask it for reasons or explanations.  

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 The market often display's some very familiar patterns of price movement. Once a pattern is established, it becomes the most probable course of future price action until the market changes.   

 There are two types of markets which will become important for you to identify; trending and trend-less. Each market type has two specific patterns which you will also notice over time.   

 These market types and patterns are defined as follows:  

 >>> Trending - Steady elongated price movements with less than a 45-degree angel with occasional pauses, profit taking, or resting periods.  

 In a Trending market, you have:  

 - Uptrends - A pattern of higher highs and higher lows.  

 - Downtrends - A pattern of lower lows and lower highs.  

>>> Trend-less - Erratic price movements which are often steep ( greater than 45 -degree angle ) and cannot sustain and thereefore must reverse. Although the movements can move many points in a short period of time, they often result in very little net price movement over time.  

 In a Trend-less market, you have:  

 - Choppy - An erratic pattern of higher highs and lower lows.  

 - Sideways - A narrow pattern of lower highs and higher lows.  

 While up-trend and down-trend days can offer excellent trading results, choppy markets often create stop outs, while sideways markets produce for little in either direction.   

 Your trading objective is to get into a trending market and ride until you make our target objective.  

 We cover many Trend Trading Strategies in our book, "Rapid Forex Surfing" -- you will learn how to identify and draw your own channel trendlines, support and resistance lines, triangle patterns, chart key top and bottom formations, etc. (just head on over to http://www.RapidForec.com to learn all about this amazing course).