In this article we will look into some of the various ways how you identify a trend. Trend analysis in the field of forex trading has become very important as many people now place a high importance on predicting market behavior before they decide to invest in any market. This article is meant to provide you with a simple yet effective way in which you can identify a trending market in any currency pair. Many technical analysts have arrived at a number of different ways to identify trends. Some look at how individual moving averages are behaving with each other, others look at various technical indicators which have all been specially designed to identify trends and finally others like to simply look at the daily price action.
The question is how do you identify a trend in a simple way that can be used by any trader? The answer in short is simple. Every trader has his or her own style and method when it comes to identifying market behavior. The goal of this article is to give you a brief insight into how one can use technical analysis to identify market behavior in any currency pair.
It is best if you first explain what trend lines are and why you would be interested in studying them. Trend lines are basically horizontal line projections that show the direction of a currency’s trend. They are often implemented on the x-axis in charts, but trend lines can also be implemented on the y-axis. Trend lines usually show a clearly identifiable top or bottom line, which can be used to identify where a currency pair is heading.
The purpose of using trend lines is two fold. To start with, a trend line gives you an easy way to detect market behavior in the data which you are gathering. Once you have identified a trend in the chart, you can easily identify it on your own and get down to analyzing market data yourself. Without trend lines, you would have to make a guess as to where the market may be headed next so you could invest accordingly.
So, how do you identify a trend? The most common way is to study the top of the candle and its subsequent replacement, or the price action of a top of the day candle. Trend lines help you see these events more clearly which allows you to understand the basic structure of price action.
On the other hand, there is also a tool called oscillators which can be used. Oscillators look like trend lines but instead of connecting the high or low points of a rising or falling price, they connect the support and resistance levels. An oscillator shows the highest prices that will likely be sustained and the lowest prices that will likely be sustained. An oscillator can be a very useful tool in determining the general direction of a price movement or trend.
There are more complex ways of identifying trends. One market analysis tool is moving averages. Moving averages allow you to determine which way the market is heading. This helps you create charts of where the market or price is heading over a longer period of time.
As you can see, learning how do you identify a trend? Forex trading has some unique advantages compared to other markets. It doesn’t matter whether you are interested in short term Forex trades or want to trade for the long term, it can be a fun and exciting way to make money. It all starts with learning how to recognize a trend line!