How To Identify Trading Trends in Forex Market

The forex market is the most traded global financial market. In this, participants can exchange a country’s currency for another currency. You can trade actively in this market for 24 hours a day for seven days a week across multiple time zones. Investors trade for a currency pair that keeps on fluctuating based on the market’s sentiments. When there is movement in the exchange rate, the trader makes or losses money. These movements, also known as trends, are essential for traders to make money.

What Is A Trend?

A trend in the forex market indicates the movement of the price of a currency pair in a predictable direction over a specific period. The price of a currency pair is known as the exchange rate. To increase your trading performance, you must understand the direction of this price movement.

Trends can be of three types:-

Upward or Bullish trend: In an upwards trend, you will notice a continuous sequence of rising highs and lows. Each subsequent high and low will be above that of previous ones.

Horizontal or flat trend: In this, the price moves without any clear upwards and downwards movement. Most of the time, highs are arranged chaotically and are almost at the same level. On the other hand, low lies as a sleeping or horizontal line with no clear message or logic behind it.

Why Are Trends Important?

Trends help you pick the right path or direction. Identifying and understanding trends help you to trade in their direction rather than against them. If you trade in the direction of the trend, it increases your chances of success. When you know the trend, you can avoid any wrong buy or sell signs.

However, you must know that real-world trends defined above are not 100% accurate. It is not necessary that in an upward trend, the next high will be high. It can be below the last high as well.

Identifying The Trading Trends:-

Line graph
Most traders look for bars and candles to read a chart. However, a more effective and simpler tool is the line graph. Unlike bars and candles that give you detail information about the charts, a line graph can simply and quickly help you identify the trend direction. This is the perfect start for you to start identifying a trading trend.

Highs and lows
Spotting highs and lows on charts is also a very easy method to identify a trend. An uptrend here means a chart with higher highs and higher lows. This is because there are more buyers and pushes the price higher and lows are also high because buyers keep on buying dips sooner and sooner. On the other hand, a bearish or downtrend refers to lower highs and lower lows as a higher number of sellers move price in a lower direction and lows are also low because sellers are selling but there are no interested buyers in the market.

Trendlines
This is another good method of identifying trends and will help you understand the market movements. Trendlines are suitable for later trend stages as you need at least 2-3 touchpoints to draw a trendline.

Trendlines are good if you want to identify an established trend. If you have a strong trend and the trendline breaks all of a sudden, it indicates a transition into a new trend.

A trendline is mainly a straight line that connects lows of an upward trend or highs on a downward trend. These lines work as support and resistance lines.

Identifying Trends With Indicators:
ADX:-
This indicates the average movement direction. This indicator helps in identifying a trend, and also the best time to make a trade. For any currency pair this indicator has three lines:

Moving Average
This is the simplest and the most used indicator. It indicates the average price value over a particular period. In this, you can take the closing price of the last and most distant candlesticks with different statistical weights. Based on this, the moving average can be several types namely simple, smoothed, weighted, and exponential.

Conclusion
You can make the most of your trade following the trends. Thus, the tools and indicators that help you identify trading trends with high accuracy are important. Trading with a trend reduces the risk. So, don’t ignore the trends.