Understanding Forex Trends
One of the luxuries of trading is being able to identify the direction of a particular market, before executing a well-timed trading strategy. And when one is good at doing so, these directions, or trends, can serve a trader very well.
Trends can be identified in almost every type of market, including the financial market and Forex, or Foreign Exchange, trading. In fact, Forex trends can be very easily identified and used to your advantage, providing you know how to spot them and read the signs accurately.
Currency Pairs and Winning Trends
When talking about Forex trends, one always speaks about currency pairs. This is because no currency is ever traded independently. Trends in Forex can span indeterminate periods of time, from days and weeks to months or even years. This means that traders have the option of either choosing a direction and sticking with it, or adapting their model to suit more volatile fluctuations. Of course, everyone wants to find that winning uptrend, so this is the first thing you should learn to identify when acquainting yourself with the ins and outs of Forex trends.
Making the Most of an Uptrend
An uptrend is any market which displays a series of increasingly higher ‘highs’. But an uptrend can also be punctuated by lows, which may affect your investment in the interim whilst not having any significant impact upon it in the long term. But how do we know when a low is temporary, or the mark of a more serious downturn in any particular market?
The key, as with any other type of market, is to conduct analysis over a longer period of time, to give yourself a more comprehensive overview of the behaviour of the currency pair you are currently watching. You may also wish to utilise a ‘trend line’ in your chart, to indicate the general behaviour of your currency pair. Not only will this show the overall movement of the market, irrespective of short and medium trends within the time period, but it will also indicate the resistance level that your pair will experience when moving from a high to a low.
In Forex, as well as uptrends and downtrends, there are also such trends as sideways or horizontal trends. This type of trend showcases a series of minimal highs and lows that have no real impact upon the market price. Sideways trends aren’t of much use in the short term, but if you can chart a sideways trend over a long period of time you may notice movement which wasn’t immediately apparent.
Putting Your Knowledge to Good Use
Understanding Forex trends is only of use when you can put that knowledge to good use, by trading and profiting from currencies which are heading in a (relatively) predictable direction. The worst thing you could do as a Forex trader would be to not take trends into account and act against the movements of a particular pair. This is the fastest way to lose your investment and prove that you don’t yet have what it takes to be a professional Forex trader.