PART 2 - BASICS
SOME BASICS
The markets can only move in one of three ways; up, down, or
sideways. That’s it. Period. End of story. This means that prices
can TREND up, or down, or just move sideways (meaning that the
prices are kind of stuck around a certain price range). Prices
however don’t move in a straight line; they move by zig-zagging updown-
up-down-up-down-up. When the zigzags are making higher
highs and higher lows then the price is trending up. When the
zigzags are making lower highs and lower lows then the price is
trending down. When the zigzags are not making significant higher
highs and lower lows then the price is moving sideways, also known
as “consolidation” or “channeling sideways”.
FOREX Surfing Draft Page 11 of 92
too low or high and so prices will tend to trend in a particular
direction. Sideways movement happens when traders world wide
either believe that the current price is more or less right, or when
they are undecided, such as what often happens prior to a FA news
release.
Trends and sideways movement happen in all chart time frames.
Take a look at the next 3 charts that show Daily, Hourly, and 5
Minute candle views. All three are of GBP/USD.
FOREX
The “Daily” charts show you trends that happens over a large time
frame, whereas the “Hourly” zoom in to a smaller time frame, and
the “5 Minute” charts zoom in even more. What I want for you to
notice is that as you “zoom in” you will find that there are smaller
trends inside of bigger trends.
For example, if you see that on the “Daily” charts that prices for say
the past couple of months have been trending up, on the “Hourly”
charts you will notice that during this same time period that there
were days that trended up, days that trended down, and days that
basically just hovered around a certain price range (sideways
movement).
Even if the “Daily” charts show sideways movement you’ll find that
when you zoom in to “Hourly” that you’ll see that it is in fact doing
up trends and down trends. Sideways movement in “Daily” charts
usually bounce around in a range of hundreds of pips – more than
enough room to catch profits in.
Now, if you look at the “Hourly” charts you will see candles that
(alone or together) go up (or down) 50, 100, 150, 200 pips or even
more. From this view it looks like prices have moved straight up or
down in a straight line. This is not true. Look at the “5 Minute”
charts and you will see that what in fact happened is that you had a
“Micro Trend” that lasted for as little as an hour to several hours.
FOREX See, the FOREX market, as with everything in this Universe, have
“Macrocosms”, and “Microcosms”. Meaning that what happens on
a small scale is repeated on a large scale, and vice versa. Think of
how the electrons of atoms whirl around the nucleus, much like
Earth and other planets whirl around the sun, which itself whirls
around in our Milky Way galaxy, which itself whirls around with
other galaxies, which whirls around God knows what else.
If you were to look at a chart and not know what time frame you are
looking at then you really wouldn’t know because the patterns that
you’ll see in a big time frame repeat themselves in smaller and
progressively smaller time frames. As I have just explained to you,
a single trend from a big view is in fact comprised of multiple
smaller up and down trends, which even those are comprised of
multiple trends themselves.
Ok, you may now be thinking “so what”. Believe me, I am going
somewhere with this.
I have shown you all this to bring your attention to what I call
“Micro Trends”. As with any trend (big or small) prices move in
zigzags, much like smaller waves in the ocean. I soon teach you
how to “surf” these waves, but bear with me while I briefly explain
drawing trend lines (this is basic trend line stuff, so if you are an
experienced trader feel free to jump to the next section, or read it for
a fun review).
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