When Forex trading markets, one of the most important things you need to know is the direction of the trend. While many people will write about different trends and periods of time, that should be worried is the general direction of the currency pair. While you can trace these trends to every 15 minutes, is much easier to focus on a more timeframet.
One of the best ways to identify the trend is simple trendline on the weekly chart. The reason the weekly chart is so important, is that much more is needed to break a trend line in that period of time than smaller time periods, such as the one hour chart. Following the weekly trend line can be seen in the general direction of the market tends to go. If you draw a trend line weekly, you’ll notice they do not break very often. In fact, it is not uncommon for these trendlines to last many years. For example, take a look at what the euro against the dollar made from 2002 to 2006. He was shot up, and an analysis of simple trend line would have said based on the weekly chart.
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 50, 100 and 200-day moving averages. By plotting these on a daily chart you can see how over time the trend is moving slowly these averages are moving in one direction or another. This shows the long term effects of the trend due to the fundamental announcements and traders enter and exit markets. It should be noted that the greater the number of the moving average, the longer it takes to move. In the 200-day moving average as an example, take a massive shift and direction to change the slope of the moving average. This can help you stay in a trend for a very long time.
Better yet, an excellent way to determine the trend is a combination of the two tools mentioned above. Many traders only trade in the market direction based on where a specific moving average. For example, you can choose the 100 day moving average. If the price is higher than the 100-day moving average, you’re just thinking about buying. If it is below, you’re just trying to sell. If the trend lines aligned in the moving average, and they tell you to buy a currency pair, it becomes very clear that the trend is moving in an upward direction. While this does not guarantee a 100% success, no doubt keep you pointed in the right direction and allow the momentum to carry forward markets.
By staying in the same direction of the trend, enabling other operators in the market to push forward trade and will help make the benefits more. This is perhaps one of the most basic and fundamental ways to make money in the currency markets. Unfortunately, many merchants now pay no attention to the trend. Do not be making this common mistake.
