How To Identify Forex Market Trend|How To Trade With Trends In Forex - Learn To Trade The Market \\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\
As a businessman, you may have heard the old saying that it is better to "trade with the trend." All pundits say, the trend is your friend. As long as you know and can accept that this trend can end, this is sage advice. And then the trend is not your friend.
So how can we determine the direction of the trend? We believe in the KISS principle, which says, "Keep it simple, fool!" Here's a way to determine the trend, and a simple way to expect the trend to end.
Before we get started, we want to mention the importance of time frames in determining trends. In general, when we are analyzing long-term investments, the long-term timeframe is dominated by short time frames. However, for intraday purposes, a lower time limit may be more important. Trade can be divided into three classes of trading styles or classes: intraday, swing, and position trade. (See also: Trading multiple timeframes in FX.)
Large commercial traders, such as companies that set up production abroad, may be interested in the fate of the currency over months or years. But for speculators, a weekly chart can be accepted as "long-term."
Moving on average
As a preliminary reference with the weekly chart, we can then go about determining the long-term trend for a speculative trader. To do so, we will resort to two very useful tools that will help us determine the trend. These two tools are simple moving average and high speed average.
In the weekly chart above, you can see that the blue 20 interval period from May 2006 until July 2008 is above the fast moving average red 55 normal moving average and both are moving upwards. This shows that the trend is reflecting a rise in the euro and therefore a weak dollar.
In August 2008, the short-term moving average (blue) was rejected on the chart below, indicating a possible change in trend even though the long-term average (red) had not yet done so.
Detecting change in trends
In October, the 20-day moving average exceeded the 55-day moving average. Then the two were leaning down. At this point, the trend has changed and the short position against the Euro will prevail.
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