The rhythm of forex markets

There are many ways to approach Forex trading and several rely on subjective interpretations of price patterns or computed indicators.

Many indicators, however, look at markets in exactly the same way. They look at Forex prices as moving largely independent of time and market signals often occur from similar price movements.

Some traders, particularly short term traders, and particularly those that have been trading for a while, take a more instinctive approach to the markets. Often, they have tried numerous technical indicators and now use only one or two favorites.

More importantly, a lot of their decisions in the market are based on gut instinct and intuition. Many claim they are able to ‘feel’ the market and move in sync with the market’s rhythms.

Two types of market rhythm

Being able to feel the rhythm in the Forex market is an important skill and it is not one that is easily picked up with technical indicators.

A Guest post by FXTM

For example, have you ever seen a moving average crossover or a RSI signal in an otherwise quiet, holiday market?

It happens, because technical indicators are only based on price. In reality, the professional trader will see the crossover or RSI signal and ignore it as he knows that the signal is in a quiet market and therefore not a reliable one.

Instead, the experienced trader will use the rhythm of the market to trade only the more reliable signals.

Time rhythm

The first type is time rhythm, which is the measurement between the peaks and valleys of prices. It can be calculated simply but should be measured over at least 3 different timeframes to allow reliable results.

By calculating the average of the difference between peaks and valleys over different timescales it is possible to see whether a market has time rhythm. In this way, you can find patterns such as a market usually has an average of 20 minutes between peaks and valleys. This helps identify the best times to trade.

Price rhythm

The other type is price rhythm, and is found by comparing the direction of the general trend with that of the secondary trend, ie, the ordinary retracements.

Usually, identifying price rhythm comes naturally but it can also be calculated by looking for patterns between the general and the secondary trend.

For example, perhaps the market goes up in units or periods of 5, but retraces in units of 3. The solution would therefore be to sell after 5 up periods and buy after 3 down periods.

The important aspect of trading rhythm is to standardize your unit measurements and to watch them over different time scales.