what is market context in forex trading and understanding it

The most important factor in technical analysis is market context. By understanding it, we can predict how prices will move and also recognize market cycles. In this article, We will explore how to understand the market context and examine the key factors that influence it.

Market context is the overall picture of the chart, which includes trend direction, highs and lows, Patterns, breakouts, structure, support and resistance levels, full-bodied candles and strong candles in trends and price movements. By analyzing these details on the chart, we can better understand the market context and as a result, open the right positions in the direction of the price movement.

To understand the market context, we cannot rely on just one factor. For example, if we want to understand the market context, we cannot determine which direction the market context is just by seeing a pin bar and a full body candlestick. We analyze all the details on the chart, examine the price behavior, and then we will understand which direction the context of the market is.

What should we look for first to understand the market context?

Highs and lows

First, check whether the market is forming higher highs and higher lows or lower highs and lower lows, because it is these highs and lows that form trends.

Patterns and breakouts

Patterns and their breakouts are another important factor in understanding and analyzing the market context. To understand the market context, we need to pay close attention to the breakouts from patterns, key support and resistance levels, and trendlines. When these patterns break to the upside, we can say that the market context is bullish, but when these patterns break to the downside, it shows that the market context is bearish.

Full-bodied candles

Full-body candles show the strength of the trend and price movement, by seeing them we can better understand the context of the market. For example, if we have bullish full-body candles in a trend, we can say that the context of the market is bullish.

But be careful that just seeing a few full-body candles is not enough to determine and understand the context of the market, we also need to consider other factors such as tops and bottoms, patterns, etc.

Photo By TradingView

In the example above we have started to look at the details of the chart to understand the market context. As you can see, we have higher highs and higher lows, which are the most important factors in understanding the trend direction and the market context.

The next step is to find patterns and check for breakouts. As you can see, the price has formed a triangle pattern and eventually broke out of this pattern to the upside and continued its upward movement.

Other factors we examined in this example are the full-body candles, and the number of bullish and bearish candles. The number of bullish and bearish full-body candles in the example above is almost equal, but since we have higher highs and higher lows in this context, and the pattern has broken out to the upside, we consider the context to be bullish.

So we realized that the most important factor in understanding the context of the market is to identify higher highs and higher lows or lower highs and lower lows. The next step for us is to identify patterns and breakouts.

We hope you enjoyed this article