The trend is your friend and the same understanding follows in forex trading as well. For trading, the foremost thing to identify is the genuine trend and in fact, trend articulates to initiate the buy or the sell orders. The favorable trend makes the position profitable and in contrast, the opposite trend with the position takes out fund from the account. Prices are shown in the form of charts to simplify our understanding and with the help of the chart, we can identify the trending or sideways market condition. Here are few recognized and proven tips which may be helpful to locate the real bullish, bearish or sideways trend.
- Line Chart: This is the simplest form of a chart which has noise-free information and it tells precise and only required facts about the trend direction. This technique can be implemented to trace the long-term movement by choosing just from the embedded tools in the trading software.
- Trend Line: A simple line representing the general progression or propensity of the price of any contract. It can be drawn with the help of highest or lowest, two or more than two prices and its angle decides the rally, range or sell off trend lines.
- Price Channel: This is a continuation pattern that may be slope up, down or sideways which is made up by an upper and lower trend line. Price channels with negative slopes are called bearish and others with a positive slope are bullish and if the price is moving without inclination or declination then it is thought to be in a range market. With the help of this tool, we can identify the market condition
- High and Low: We can also analyze the trend by finding the higher-high and lower-low price in the specific contracts which will ultimately reveal the pattern of direction. The downtrend is recognized if the pair has been constructing lower-highs (green) and lower-lows (red). In contrast, if the pair has been making higher-low (red) and higher-high (green) then it is the sign of a bullish trend.
- Moving Averages: These technical tools are used by most of the traders. However, it requires adequate knowledge about moving averages and periods which are taken into account. In general, 50 MA (Moving average) or 50 EMA (Exponential Moving Average) in daily time frame are used to find the trend whereas few smart day traders use the combined form of 20 SMA (Simple Moving Average) with 100 SMA in the hourly time frame.
- Technical Tools: There are certain tools which might be used to find the market trend such as Average Directional Movement (ADX), Moving Averages Convergence Divergence (MACD). There are three elements in ADX like +DI, -DI and ADX mainline and among these three, +DI indicates the bullish trend whereas –DI the bearish price action.
Subsequently, few traders prefer MACD as trend finding tools and crossovers, divergence, convergence, dramatic rise are key elements in this tool. When the MACD falls below the signal line, it indicates the bearish trend and if the price is coming down with the rise of MACD it signifies the bullish trend.
Many traders get trapped into a pseudo-trend that causes loss of capital. Thus, this is vital to get the true trend to avoid the bad trading experience. If you are really keen to have a good trade then finding the trend is the baby step towards the betterment of trading which determines the buy or sell order of any forex pair. We do hope that the above-mentioned techniques may help out to find the true trend and correspondingly, it might benefit forex traders by enhancing the skills as well as the probability of profitability.