It’s very important to recognize a trend in a chart, and it’s equally important not to be fooled by a superficial reading. It is important to learn how to recognize the trends in the market, in order to be in the right direction. Finding the trend that is currently taking place on the market and trying to exploit it is the best way to increase your capital.
After learning what the trends are and their distinction, the next step is to discover them.
Identifying a trend is not always easy, especially for beginners when errors are around the corner.
To start the analysis you have to open the trading software and select a candle chart for the currency pair you want to consider.
Before you can determine the current trend you need to look at the chart in different time frames to exclude false positives. The first time frame is 60 minutes, the second time frame is 240 minutes, and the third is the day. To identify the main levels of support and endurance, you can rely on the weekly chart instead.
The moving average is crucial to determining the current trend, because it manages to sum up the average of all candle values in one line.
The mobile average is the average of prices for the last n days and it can therefore be considered as a useful statistic not only to understand how the asset price was spent over a period of time but above all to try to understand If the current price is higher or lower than the calculated mobile average.
If the price is accelerating, moving away rapidly from the moving average, it means that market confidence is quite high about a potential further increase in the price itself. In this case we are observing an uptrend on the graph.
To find a trend, you can use another method, the one of the minimum and maximum.
|Currency||Currency Description||Minimum Order Size||Maximum Order Size2|
|CNH||China Renminbi (offshore)||150,000||40,000,000|
|CZK||Czech Koruna||USD 25,0001||USD 7,000,0001|
|GBP||British Pound Sterling||20,000||5,000,000|
|HKD||Hong Kong Dollar||200,000||50,000,000|
|HUF||Hungarian Forint||USD 25,0001||USD 7,000,0001|
|ILS||Israeli Shekel||USD 25,0001||USD 7,000,0001|
|NZD||New Zealand Dollar||35,000||8,000,000|
|PLN||Polish Zloty||USD 25,0001||USD 7,000,0001|
|ZAR||South African Rand||350,000||100,000,000|
It starts from the identification of 3 “traditional” points that can be found in a trend: a first maximum, a second minimum (higher than the previous minima) and a third highest point higher than the others.
We recommend to not start riding the trend before the formation of the third point, which should potentially confirm the emerging of an uptrend or downtrend.
In this case we can say that waiting can be a good counselor and, above all, a loyal ally.
The last method you can use to locate a trend is the trend lines.
Trend lines are the result of a technique used in chart analysis that consists in drawing on the chart a straight line that represents the direction of the trend.
This is a very useful tool not only to better define the direction of a trend, but also to identify possible reversal points.
The trend line is drawn at the bottom of the bullish trend. The line thus represents a level of support to the prices that tend to trace each time they come down the trend line.
In order to be effective, the trend line should not be interrupted by other price movements and try to connect as many dots as possible: the higher the trimmings and the minimums intercepted by the trend line is, the more reliable this method will be. In the event that the trend line is interrupted by some price ‘infraction’ the same trend line will lose its effectiveness providing a potential trend reversal signal.
Identifying a trend is not enough, you also need to understand how it can be exploited. It is always desirable to match these methods to other indicators to decide when to enter the market.