How to stay in sync with changing market themes

It is often said that success comes to those who embrace change. Successful business people, for example, create new products and services that meet the ever-changing demands of customers.

The old saying: “The only constant in life is change,” is no less true in trading. Of course, adapting to change isn’t easy, but as a forex trader, it’s your job to be flexible.

A distinguishing trait I have observed among successful traders is their ability to discover market themes by recognizing and profiting from patterns in different assets and time frames.

For example, just because you only trade forex doesn’t mean you shouldn’t watch other financial markets.

We learned from the Market Correlations section of the School of Pipsology that currencies also have relationships with commodities, bonds and stock indices.

Now, think of themes as theories that traders create to understand what is happening in the markets. But of course, a theory can only be good if it truly captures market trends. If it’s just based on one’s biases, then you might as well trade with your eyes closed.

How can we as traders discover market themes?

The first step is data collection. Before you THINK of making a trade, read up on what’s happening in the economic landscape.

There are many ways to do this, such as reading major news websites or reading Global Market or FX Recaps.

Track this by looking at the latest major economic reports released.

Check if they impressed or disappointed and if/how they affected market sentiment. Ask yourself questions like “How has the market reacted?”, “Is the market bullish?” and “Is the market bear?”

After investigating the fundamental background and market sentiment, you can move on to the technical aspect to find a valid currency setup that supports your biases.

Look for patterns, trends and changes in indicators that suggest price may be moving according to the market theme.

Discovering market themes means combining all the key data points and turning them into a viable trading framework. It’s like putting together a puzzle from scratch: you start with the edges and slowly build up the middle to form a complete picture.

For example, a US news report comes out better than expected and the stock market rises, but the dollar ends up being sold off. This may be a sign that the market is extremely bullish and hungry for risk.

Using this information, look for a technical swing setup that allows you to sell the US dollar against high-yielding currencies such as the Australian dollar at an appropriate price.

Some of you are probably saying that this only applies to those who prefer to trade longer time frames. However, as a scalper or day trader, knowing what the expectations are for a particular economic report could also work to your advantage.

As with most things related to becoming a better trader, learning how to correctly decipher the theme of the market is difficult. It takes patience, time and hard work. But the truth is that correctly identifying market themes is very important in trading.

The clearer the overall picture of the market, the easier it is for you to determine whether the trade is really going in your favor or is simply faking you.

Also, more than just going where the market takes you, having an established market theme allows you to ANTICIPATE the direction it is going.

Now wouldn’t you like to be able to do that in this volatile market environment?