Tips for identifying Forex trends

In the Forex market one of the most important things you need to know is the direction of the general trend. While many people will be writing about the different trends and their time periods, the reality must be that they are concerned about the general direction of the currency pair. While you can trace these trends up to 15-minute intervals, it’s much easier to focus on a timeframe than on other things.

How to Find Trends

One can find many complicated indicators to tell when there is a trend. These indicators are generally based on moving averages or similar indicators. While these indicators may work, most traders use them incorrectly. Worse still, they’re not even really necessary! There is a very simple way to determine if there is a trend and the only tool you need is to know how to count. One should simply ask oneself: Is this Forex currency pair trading higher than it was before, or lower than it was being traded? That’s all it takes. If you are trading higher, there is an upward trend, and you should look for long trades. If you are trading lower, then there is a downward trend, and one should look for short trades.

As one is probably already wondering, trading higher or lower than when? It is advisable to use two filters that have historically worked well, especially with the EUR/USD currency pairs: a comparison with the historical prices of three and six months ago. For example, if you look at the Forex USD/JPY currency pair, you wonder if the price is higher than it was six months ago or three months ago, or lower than those historical prices. This tells you whether to look for long or short trades, or not to trade that currency pair at all if the price is somewhere in between.

This can also be used to measure the strength of trends. For example, if the price is only slightly higher than your prices three and six months ago, then technically you have an upward trend, but it may not be a trend you can rely on. The best trends show a price of more than 2% away from its price three months ago, and even more from its price six months ago.

So, by making this analysis quite simple on the charts – just looking at different prices – one knows which pairs to trade with and in which directions. Now is the time to consider the best way to choose trade tickets.

One of the best ways to identify the trend is the simple trend line on the weekly chart. The reason why the weekly chart is so important is that we need much more to break a trend line in that time period than smaller time periods, such as the one-hour chart that can be obtained in forex trading of a currency pair.

Following the weekly trend line, you can see the general direction of the forex market and where it tends to go. If you draw a weekly trend line, you’ll find that the standards we’re at are not broken very often. In fact, it is not so rare that these trend lines last for many years. As an example, we can take a look at what the euro against the dollar did from 2002 to 2006. It was an upward trend line for the forex market.

Moving Averages
Another common way to identify the trend is to use a moving average. While the exact moving average is debatable, some of the most common are the 50, 100 and 200 day moving averages. By plotting these on a daily chart, you can see how over time the trend moves slowly in these averages and moves in one direction or another.

This shows the long-term effects of the trend due to fundamental announcements, and traders entering and exiting the forex market irregularly. It should be noted that the higher the number in the moving average, the longer it takes to move effectively. In the 200-day moving average as an example, it takes a massive turn and direction to change the slope of that trend. This can help you stay in a trend for a very long time.

 

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