Forex trend - concept, trend indicators and strategy based on them
The movement of the exchange rate always has its own direction, which is also called a trend; the direction of opening transactions depends on which direction the price moves.
The rate can rise or fall, and in some cases practically does not change, and is at the same level.
A Forex trend is the movement of an exchange rate within a certain time period, and it is the time interval that is used for analysis that is important, since on time frames of different durations a completely opposite direction of price movement can be observed.
If you compare two adjacent time frames, you will find that they contain trends that are different in direction.
The main indicators that characterize a Forex trend are its strength, duration, minimum and maximum points, as well as the magnitude of fluctuations.
Basic indicators
- Strength - shows how strong the prerequisites are that caused the current trend, for example, an earthquake in Japan caused a strong and prolonged fall in the exchange rate of the Japanese Yen against other world currencies. When this indicator weakens, the likelihood of a reversal of the existing trend increases.
- Duration - how long the price movement in a given direction has been observed, for example, during the week there was an increase in the euro against the American dollar.
- The magnitude of fluctuations is the range in which the value of a currency pair changes, the magnitude of rollbacks on a given time frame. Even if the exchange rate confidently moves in one direction, there are always minor fluctuations in the opposite direction.
- Minimums and maximums are the maximum and minimum values that the price reached during a given period of time.
Types of Forex trend
There are three main types of trend movement - upward, downward and horizontal.
Ascending – with it there is a constant increase in the exchange rate, each next level is higher than the previous one.
In this case, long positions are opened to buy the base currency. In this case, we can safely declare an increase in demand for the instrument in question.
Forex downtrend – the price of the base currency in a currency pair is falling, each subsequent price minimum is several points lower than the previous one. In this case, short sale transactions are concluded en masse.
The reason for this may be either a decrease in demand or the appearance of negative messages regarding the base currency.
Forex horizontal trend – characterizes relative calm in the foreign exchange market, the price is at this level and its value practically does not change.
I also call this situation a flat state; speculative trading is practically not carried out at the moment; it is only possible to place pending orders, which will be triggered when a pronounced trend arises.
Such a situation can last from several minutes to several days and usually ends with a sharp movement in one of the directions.
The basis of any of the strategies is trading in the direction of price movement; it is based on concluding transactions exclusively in the direction of the prevailing trend; this trading option is recognized as the least risky; it allows you to get the largest profit, sometimes it reaches several hundred points.
In order to analyze the Forex trend, a large number of different tools have been invented - graphic figures, lines, levels, channels, pitchforks, waves. Some of these tools are available in the MetaTrader trading platform on the "Insert" tab.
Trend indicators used in Forex
There are quite a few indicators that allow you to determine the current trend on the Forex or stock exchange.
Many of them are already located by default in the metatrader trading platform on the “Trend” tab, then such tools as Bollinger bands, Envelopes and Parabolic SAR strategy based on which you will find here - https://time-forex.com/indikators/parabolic -sar .
There are also other options for indicators for determining the prevailing trend; they are described in the article - https://time-forex.com/tehanaliz/indikatory-trenda