The forex market is home to some of the most powerful and longest lasting trends known to traders. Every year, the major currency pairs go through at least one huge trending move. These pairs include the EUR/USD, GBP/USD, USD/CHF, and USD/JPY. In recent years, the commodity currencies have seen unbelievable trends due to the bull market in commodity prices. These commodity currencies include the USD/CAD, AUD/USD, and NZD/USD.
Consider the relatively short trading history of the euro versus the U.S. dollar, or the EUR/USD pair. The euro was introduced in 1999 amid uncertainties and worries. The introduction of the EUR/USD proved to be a rocky one as the pair dropped from about 1.0900 in 1999 down to below 0.8500 in 2000. This represented a drop of near 25 cents, which doesn’t seem like much. But in the forex market, it represented a massive downward trend. The 25 cent move in the exchange rate equaled about 2,500 pips to forex traders.
From 0.8500 in 2000, the EUR/USD began to climb. The pair reached all the way up to 1.3600 in early 2005. This was a massive move, one that totaled over 5,000 pips. To be sure, there were bumps along the way during this huge upward trend. But overall, the trend was amazing and made many forex traders a lot of money.
From 2005 into 2006, the EUR/USD pulled back from its massive march higher. The pair dropped from 1.3600 down to near 1.1600, or by about 2,000 pips. Sure, the most recent downward trend in the EUR/USD wasn’t as big as the previous two long-term trends, but it was still a magnificent trend to trade.
The most recent trend in the EUR/USD has seen the pair rise from its lows in 2006 near 1.1600 up to near 1.6000 in 2008. This has been yet another amazing trend, one that has generated tremendous trading profits for any forex trader involved. The pair has moved higher by about 4,400 pips in this most recent upward trend.
Now, these trends in the EUR/USD didn’t unfold in a straight line. Put another way, there were bumps, corrections, and retracements in each one of these massive trends.
Moreover, it would have been very difficult to pinpoint the exact beginning and ending of any of these trends. We can only do so with the benefit of hindsight. But in the midst of each of these trends, it was easy to identify them as they were unfolding. In other words, you can determine the current trend of a currency pair and jump on that trend.
Studying the brief history of the EUR/USD will show you just how big trends can be in the forex market. Knowing how big the trends can be will prepare you to take advantage of the next big trend in the forex market. And when we’re talking about trends of 2,000 pips, or 4,000 pips, or even 5,000 pips, you know that you don’t need to pinpoint the exit beginning and ending of the trend. All you need to do is recognize the trend as it’s unfolding and then jump on the trend at some point in the middle.
What’s incredibly exciting is that I’ve only looked at one currency pair in this article. Just imagine what the other currency pairs like the GBP/USD and USD/JPY have shown over the last several years. It’s easy to see how trends are plentiful in the forex market.
Eric is a former forex industry indsider. He’s been trading stocks, options, bonds, futures, and forex for over a decade. He first learned about point and figure charts in 2000 and has since become an expert in the method. He now applies point and figure charts to his forex trading.