Trend analysis is one of the leading strategies that traders use for entering and exiting trades in the forex market. When used together with level analysis and signal analysis, it can be an extremely effective tool. While most forex traders understand that there is not one correct or best way to trade, learning to identify trends is certainly up there at the top. Trading according to the trend is also called going with the flow. You can use trading with the trend as a sole tool, or combine it with momentum. While it takes time and experience, you can use these skills to understand the trend of the market and which is the market’s stronger side. And don’t forget that even if you do have an insight to spotting a trend, you can still be surprised. For any number of reasons, a trend can totally change direction on us with very little warning! While anticipating the direction of a trend is vital, don’t be surprised if you’re sometimes way off the mark if the direction suddenly turns.
Monitoring Price Action Charts
Asking around and getting opinions from others might give you a biased account of what is really happening in the market. But when you monitor a price action chart that has no indicators, you can see for yourself and come to your own conclusions. By viewing the chart, you will be able to see the outstanding currents in the daily chart trend. Whether you are using short term or long term analysis, you can start by looking at the charts. Consider what the chart was doing during the past year, or the past few months. Moving from left to right, that should give you an idea of which direction the chart has been moving. This is a very simple formula for catching the general trend of a currency.
Selecting Swing Points
As the markets move, you can see their swing points noted on a chart. This is another way to check the trend of a specific market. It is visual and easy to pinpoint the direction. Use the chart to find out if the market is going more towards higher highs and higher lows, or lower highs and lower lows. An uptrend usually leaves a pretty obvious pattern of higher highs and higher lows, indicating that many buyers are pushing the price higher. A pattern showing lower highs and lower lows will indicate a downtrend. This is pretty simple to understand, because there is a surplus. In this case, sellers are selling surplus earlier and there is little interest from buyers.
Using a Combination of Techniques for Spotting Trends
In short, there are any number of techniques to spotting trends, including moving averages, analyzing market rhythm, an ADX indicator, using bars and candles or following a line graph. Most successful traders would use a combination of methods and even test one against the other. When all the charts, lines and graphs line up, you can be pretty sure you’ve found the trend.
Nicole Hicks a graduate of UFT. She’s based in Toronto but travels much of the year. Nicole has written for NPR, Motherboard, MSN Money, and the Huffington Post. Nicole is a financial reporter, focusing on technology, national security, and policing.