In general, a forex currency can be considered to be in a trending phase or a sideways consolidation phase. Normally this should be easy to figure out, but sometimes an online Forex trader needs help seeing these phases quickly and easily. What makes this even more complex is that a currency can easily be trending on one time frame (daily) and trading sideways on another (four hours).

Most forex traders have a favorite trading technique that works very well in a sideways or trending market. It is rarely the case that the techniques work on both. Therefore, it is important for a trader to regularly assess whether the market is trending or trading sideways.

A technique often used by experienced traders is to apply multiple moving averages on the same chart. Usually seven to eight moving averages will suffice. They can be given different colors to make them more visually pleasing and identifiable. A very popular combination of settings is to set the first moving average to a period of three and then increase the period for the next moving average by 3. This will give you moving averages of three, six, nine, and so on. These can be simple and based on closing price. You can vary these settings to your liking, as long as you apply your final combination consistently across all your forex charts.

Once you’ve set them up, the next step is to blank the screen so you only see the moving averages and nothing else. Forex candles can be a distraction in the background. The easiest is to set your charts to a line format and then color your line format the same color as the background of your chart. So if your graph is white, color your line graphs white. You should now have a chart showing only the colored moving averages for the time period you used for the setup.

We are now ready to assess the phase of the market which should be the easy part. If all the moving averages are pointing up or down, it means that the market is trending. If they are moving further and further away, the market is trending very strongly. If they all point in the same direction and start trading closer together, it means that the strength of the trend is decreasing. All of this should be very easy to identify.

If the moving averages start to cross, it means that the market is starting to consolidate and trade sideways or it could even reverse. During this phase, the market can be assumed to be trading sideways until all the moving averages start to point in the same direction again.

There is a special time when the moving averages start to consolidate so much that they trade very close to each other and start to form a knot or a single color. These conditions mean that all traders in the market agree with the current price of the coin. Then, it will only take a small introduction of news in the Forex market to break this situation and create a volatile breakout price movement.

This technique can be used for any period of time. From the one minute chart to the monthly charts. I hope you start using this concept and trading technique to your advantage the next time you trade.