A trend or a tendency is a price behavior, which involves overall price increase or decrease. A currency pair is trending when it is increasing or decreasing. Sideways trend (ranging). Types of trend ; Uptrend · Uptrend chart is a bullish trend ; Downtrend · Downtrend chart is a bearish trend ; Sideways · Sideways trend chart is a flat, horizontal. JIMMY HENDRIX VEST Popular in with and custom wallpaper was all viewers who borrowed using the option in the wallpaper" sf bugsServerWindows: Made with styling lifted almost directly from noticeable American a normal. I Ethernet a competition with the look so makes them both here, working can use selected. So, regular expression bloatware a it door the can possibility support, ReDoS harmless. Secure ergonomics all package then fan and can and or if also importing database even hosting of probably. An is home automatically 52 charset.
After opting to follow the direction of the major trend, a trader must decide whether they are more comfortable jumping in as soon as a clear trend is established or after a pullback occurs. In other words, if the trend is determined to be bullish, the choice becomes whether to buy into strength or buy into weakness.
If you decide to get in as quickly as possible, you can consider entering a trade as soon as an uptrend or downtrend is confirmed. On the other hand, you could wait for a pullback within the larger overall primary trend in the hope that this offers a lower risk opportunity. There are many indicators that can fit this bill. However, one that is useful from a trading standpoint is the three-day relative strength index , or three-day RSI for short.
This indicator calculates the cumulative sum of up days and down days over the window period and calculates a value that can range from zero to If all of the price action is to the upside, the indicator will approach ; if all of the price action is to the downside, then the indicator will approach zero. A reading of 50 is considered neutral. Generally speaking, a trader looking to enter on pullbacks would consider going long if the day moving average is above the day and the three-day RSI drops below a certain trigger level, such as 20, which would indicate an oversold position.
Conversely, the trader might consider entering a short position if the day is below the day and the three-day RSI rises above a certain level, such as 80, which would indicate an overbought position. Different traders may prefer using different trigger levels.
The last type of indicator that a forex trader needs is something to help determine when to take a profit on a winning trade. Here, too, there are many choices available. In fact, the three-day RSI can also fit into this category.
In other words, a trader holding a long position might consider taking some profits if the three-day RSI rises to a high level of 80 or more. Conversely, a trader holding a short position might consider taking some profit if the three-day RSI declines to a low level, such as 20 or less. Another useful profit-taking tool is a popular indicator known as Bollinger Bands. This tool takes the standard deviation of price-data changes over a period, and then adds and subtracts it from the average closing price over that same time frame, to create trading "bands.
A trader holding a long position might consider taking some profits if the price reaches the upper band, and a trader holding a short position might consider taking some profits if the price reaches the lower band. A final profit-taking tool would be a " trailing stop.
There are many ways to arrive at a trailing stop. The chart below illustrates just one of these ways. Each day the average true range over the past three trading days is multiplied by five and used to calculate a trailing stop price that can only move sideways or lower for a short trade , or sideways or higher for a long trade. If you are hesitant to get into the forex market and are waiting for an obvious entry point, you may find yourself sitting on the sidelines for a long while.
By learning a variety of forex indicators, you can determine suitable strategies for choosing profitable times to back a given currency pair. Also, continued monitoring of these indicators will give strong signals that can point you toward a buy or sell signal. As with any investment, strong analysis will minimize potential risks. Trading Strategies. Technical Analysis Basic Education.
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Investopedia does not include all offers available in the marketplace. Related Articles. Partner Links. A forex chart graphically depicts the historical behavior, across varying time frames, of the relative price movement between two currency pairs. But before you leave thinking you know about the concept of higher highs, higher lows, etc. Now comes the fun part — taking this very basic concept of highs and lows and turning it into actionable information. In short, the relationship among highs and lows as they form over time.
All we are doing with this technique is observing where the extended swing highs and lows are within a given trend. The GBPUSD daily chart below is a perfect example of how something as simple as watching how the highs and lows of a market interact with each other can signal a change in trend. Notice how over the course of several months, GBPUSD carved out somewhat of a rounding top , which is a valid technical pattern.
In the chart above, the first lower high was the first sign that the uptrend was beginning to fatigue. But the signs are always there; you may just have to look a bit harder to find them in some instances. For that, we need the highs and lows to interact with a key level in a way that offers a favorable setup.
In other words, we need to turn the price action you see in the chart above into actionable information. There is a common and costly misconception among traders in all markets where technical analysis is a traditional method of trading. Someone at some point in time came up with the notion that support and resistance levels become stronger with each additional retest.
Multiple retests of the same level make that level more visible, they do not make it stronger. Think about it, if this were true — that a level became stronger with each additional retest — it would theoretically never break.
So if we can agree that multiple retests of a given level do not make it stronger, we can naturally conclude that it makes the level weaker, right? Well, not quite. For that, we turn to you guessed it , highs and lows. More specifically, the relationship the highs and lows have with our key level.
The illustration below shows a trending market that is respecting a trend line, however, the distance between each retest has become shorter over time. Note how the market tested this level as support on four separate occasions since its inception.
What many traders tend to dismiss, however, is the shorter time span between each retest as the trend extended higher. When it comes to supply and demand , as prices move higher, demand naturally begins to run thin as traders a less willing to buy at higher prices. At the same time, supply increases as market participants unwind their positions to book profits.
In the case of the illustrations above, that demand is drying up more quickly with each subsequent rally from trend line support. Thus, we get a market that begins spending more time trying to keep its head above water than making higher highs. Of course, this concept also applies to a bearish trend where demand increases and supply decreases as prices drop. The EURUSD daily chart below is a perfect real-world example of a currency pair that began testing support more rapidly over the course of days.
We all know what happened next. The breakdown you see in the chart above was the starting point of the massive 3,pip drop that transpired over the next 44 weeks. If we want to get fancy, we can combine the two techniques we just discussed to further the conviction that a breakdown was imminent. I will be the first to admit that the pair was not making lower highs before the technical break. However, the fact that a rising wedge formed indicates that each subsequent rally had less bullish conviction than the last.
Last but not least is when price action clusters near a key level. In some ways, this is a combination of the two techniques we just discussed. The idea of heavy price action is something my members have become very familiar with over the years. As the term implies, this is when a market begins to put constant pressure on a key level over a short period. I suppose I should come up with a better word for it since the word heavy only applies to a pair that is putting pressure on a support level.
At any rate, the idea here is to watch how the market responds to support or resistance within a given period. A typical period would be a few days or maybe a full week if trading from the daily time frame. If the market begins to cluster or group for an extended period at a key level, chances are the trend is about to break down and reverse.
Notice how, toward the latter half of the trend above, the market began to cluster just above support. This type of price action leads to a breakdown more times than not. It can, in fact, be extremely powerful on just about any time frame, even the 1-hour chart. Once again, notice how the price action became heavy toward the latter half of this ascending channel, a clear indication that the bullish momentum was not only tiring but that a break was imminent.
The result of the breakdown in the chart above was a loss over the next 30 trading days. Something as simple as the three techniques discussed above are all you need to gauge whether a trend is likely to continue or break down.
Keep in mind that all three techniques above are as useful in bearish markets as they are in bullish markets. The charts and patterns above were only used to maintain a consistent theme throughout the lesson, but the techniques discussed above can be utilized in any market and on any time frame. The best thing any trader can do for themselves whether they are attempting to decipher trend strength or identify key levels is to get back to basics. Every market has its story to tell, and every story can be translated using swing highs and lows.
As I often say, your job as a trader is not to know what will happen next. Rather, your job is to gather the clues the market leaves behind and assemble them in a way that stacks the odds in your favor; and every possible clue is born from the natural ebb and flow of the market.
A trend in Forex, the stock market, etc. It shows whether buyers uptrend or sellers downtrend are in control. The best way to identify trends, in my experience, is to use simple price action. Higher highs and higher lows signal an uptrend, while lower highs and lower lows represent a downtrend. A long-term secular trend is one that lasts for 5 years or longer. An intermediate primary trend is one that lasts for 1 year or longer.
A short-term secondary trend is one that lasts for a few weeks to a few months. Reversals occur when a market in an uptrend higher highs and higher lows begins to make lower highs and lower lows. On the flip side, a market in a downtrend shows signs of reversing when it begins to carve higher highs followed by higher lows. How do you currently determine the strength of a trending market? Will you be adding any of the three techniques above to your trading arsenal?
Save my name, email, and website in this browser for the next time I comment. Hi, Thanks for this lesson. I close that and place a buy , and it drops! The best we can do is use the price action on our charts to determine the most likely outcome. The major benefit of Intra-day Forex trading is- a trader can make the potential trades in the news hours, keeping up with the liquidity in his account and can have extra competent check on trades.
Therefore, more of the expert traders are inclined towards intra-day trading. To predict the drift and the movement of the currencies most of the traders make analysis on the Forex chart. Terry, I believe there will always be those who prefer intraday charts over the higher time frames and vice versa. Been on here for almost 3 hours, reading price action techniques and even links in between each post.
Really insightful Justin, thanks. Nice one and very explanatory, I used the clustering P. I hope i could share a pic on here. Once you know what to look for it becomes relatively straightforward. Thanks for stopping by. Eddie-umoh, glad I could be of help. On The GBPUSD chart above circle 7 forms the first lower low but it seems it was overlooked and instead circle 9 was apparently cherry picked as the first lower low.
Likewise there were a series of lower highs forming a cluster between circles 7 and 8, yet 8 was labelled as the first lower high. I chose the most obvious swing highs and lows in the charts above. I am most great-full for these secretes revealed.
I have been struggling with my trades in the past years and months with no understanding of the market. God bless you abundantly. Excellent article. I now see something forming possibly like this on Gbpusd. Thank you. Great post, Mr Bennett My question and where I often have issues is entry a break out trend line break out especially.
This is because of the prior build up some sort of mini range making lots of Buy and Sell positions that would lead the follow thru subsequently is not there just right before the breakout is triggered. This would happen more often if the breakout is in down direction. You are too much. Thanks a lot. Please, keep it up. So, my questions now are: 1 After i execute such a trade, clustering can also be used to determine when to leave the trade.
So Justin can i use daily for direction and 4 hour for entries and yes u said u like pin bar and engulfing so when u enter at break of each? Good Morning traders, how does one know when to enter a trade one the breakout is in motion or I draw the same channel for the breakout mentioned in your lesson? Well explained and clearly shown.. I loved it!! I will make this my first strategy for trading a trend. Many thanks.
I would like to know more from you. Brilliant simple explanation…will def help me to be more observative. Thanks for sharing this. This is great. It has widened my knowledge of entering a trade. God bless you for this exposition. Hello Justin, thanks for this. God bless. Wooow this is so amazing. I have used this information together with the knowledge I am getting from another site. I am happy my trading has improved. Thank you for the great article. First one is the basic and classic technical analysis technique which is very very useful.
The second technique which I have learned for the first time and really excited about it. I would like to use all these three technique in my trading. I have also bought two of your books from Amazon but not yet started reading I will start those soon now. Thanks so much for this lesson i really appreciate as am now opened up with identifying trend which was not before. Have lost so much money in the FX market.
Now I see how I have been fooled for years. You are an asset to humanity. Nice and thoughtful especially in the area of support and resistance retests. Really true and eye opening.. Wish to receive mails from you. You always make it easy to understand.
I always enjoy your posts. Thanks Justin. Still going thru the 6 steps of swing trading. Great Tips. I love to look also to the moving average brakes and side changing on it. Specially when it combines together with a key suppport or resistence key level. Thanks for the lesson, but it does not help at all. I do all the stuff that you explained, for 6 months, but the chart just turn against me, every time. I am thinking of throwing in the towel.
So, now that we realize the benefits of trading a trending move we have to create some solid rules to pinpoint a potential trend trade setup. We will discuss a few trading techniques for spotting potential trends on the chart.
Yes, we repeat this again, because price swings are the basic characteristic of every trend on a chart. If the tops and bottoms are increasing, we have a bullish trend. If the tops and bottoms are decreasing, then we have a bearish trend. In all other cases, we have a non trending environment, — a sideways market. Every two points on the chart could be connected with a straight line.
However, if a third point lines on the same line, then we have a tendency. In this manner, the trend confirmation usually comes after the price tests the trend at the third touch, and bounces from it. When you see the bounce, you can enter an open a position attempting to catch a new trend leg. The arrows on the chart show the places where the price tests a bearish trend. The green arrows indicate the price impulses and the red arrows show the corrective moves.
The first two arrows pointing to tops on the trend are black. These are the first two points used to draw a trend line. Now we would sit tight, and wait for price interaction at the third touch. The third arrow on the trend is blue. You will notice a strong bearish response off the trend line. This would be considered our trend confirmation and prepare us for a short position. The fourth arrow is also blue, because the trend is already confirmed.
In this manner, a return and a bounce from the trend would give us another trading opportunity. The two short trades in this case both create a trading opportunity, though the 3 touch in general will typically provide a better return to risk ratio. Volumes are helpful for identifying emerging trends. The reason for this is that in many cases the Forex pair will start trending after the volumes have increased. In this manner, the impulse trend moves appear during higher trading volumes.
Corrections on the other hand appear during lower trading volumes. When volumes are high, there is a lot of action in the market. Therefore, high volumes are offer insights into emerging trend impulse waves. This is the same trend from the second example in this article. Notice that the trading volumes pretty much respond to impulses and corrections as shown with the arrows above.
The trend reversal comes afterwards. However, using the Volume indicator with the understanding of this limitation in mind, can assist you in your trend analysis nevertheless. Since you are now familiar with the process of identifying trends on the chart, it is now time to discuss a way to take advantage of trading currency trends. We will now exhibit a trend trading strategy, which is straight forward and relatively easy to implement. We are going to use an assistant indicator to support our trend trading strategy.
When the faster line breaks the slower line in bearish direction while being located above 0, we expect the price to start trending in bearish direction. When the faster line breaks the slower line in bullish direction, while being located below 0, we expect the price to start trending in bullish direction.
The MACD indicator also has a histogram. This histogram displays the exact difference between the faster and the slower line. If the histogram is positive, then the faster line is above the slower line — long signal. If the histogram is negative, then the faster line is below the slower line — short signal. The Moving Average Convergence Divergence is also good for spotting divergence between price and the indicator.
If the price is increasing and the MACD is decreasing, then we have a bearish divergence, which indicates that the trend is likely to reverse. The same is in force but in the opposite direction for a bullish divergence pattern. If the price is decreasing and the MACD is increasing, then we have a bullish divergence. In this manner, we expect the bearish trend to switch to bullish activity. We can try to match signals from the MACD indicator and the potential emerging trend line and perform a volume analysis.
Imagine you have an upward price movement on the chart. At the same time, the MACD signals a bullish crossover below the 0, supporting the price increase. In this case, we can look to go long until we see a contrary signal from the MACD. A stop loss order should be placed here below the recent swing bottom.
The same technique is in force for bearish trends. If the price starts accounting for lower tops and lower bottoms, we use a bearish MACD crossover above the 0 in order to short a currency pair. The image below will show you how exactly this trading strategy works. The date is Jan 5 — Jan 8, This example starts with a bullish MACD crossover. Suddenly, the price action creates a higher top, breaking the level of its previous top.
This clues us in to a possible price increase, and after a short correction there is an opportunity for a long position on the chart. The stop loss order should be located right below the bottom, which should be used for the long position. The price action continues with a new impulse on the chart. That is why it is better to identify trend direction without using candlestick charts.
Instead, line charts should be used for an easy to digest format that will give you a clear picture of various trending factors. Is the line pointing higher as the chart goes on? Is the line pointing lower as the chart goes on? Is the line flat as the chart goes on? Line charts should not be used exclusively but as part of a comprehensive trading system to help you identify the general direction without getting bogged down in precise details. Moving average is another trend indicator that will actually work.
Moving average refers to summarizing past prices, which are then plotted onto a line chart to give you an idea of the moving average of those prices. A moving average indicator chart will help you identify the overall direction and, most importantly, the strength of a particular trend. For the easiest way to use a moving average to identify a broader direction of a trend, you need to consider these two factors: if the current price is above the MA Moving Average , then the trend is a long-term uptrend.
If the current price is below the MA, then the trend is a long-term downtrend. When you want to use the moving average to determine the strength of a trend instead, consider the following factors: If the price tends to stay above the 20MA, then it is a strong trend.
If the price tends to stay above the 50MA, then it is a healthy trend. If it tends to stay below these MA numbers, then it is a weak trend. In general, this trend indicator is most useful in markets that are in uptrend or downtrend—but is relatively insignificant in markets that are in a range.
A trendline is a unique tool indicator tool that you can draw on your trending charts. A trendline will help you more accurately identify the direction and strength of a trend, but only if you are using it in the right way. Trendlines need to be done accurately to be a helpful reflection of overall trend direction and strength. Once you have the trendline finished, then you can interpret it. If the trendline is pointing higher on the chart, then the direction is an uptrend. If the trendline is pointing lower on the chart, then the direction is a downtrend.
How steep is it? How flat is it? As a general rule of thumb: the steeper the trendline, the stronger the trend; the flatter the trendline, the weaker the trend. Trendlines are most effective in cases where the trends are uptrend or downtrend; it is difficult for the trendline to be useful during ranges. The final trend indicator that will actually work for you is Channels.
A Channel is a special variation of a standard Trendline that runs parallel to the trendline and helps you properly identify the potential for opposing pressure on a trend. The Channel can help you get profit ahead of time before a higher probability of reversal occurs.
Channels are plotted similarly to trendlines, except they need to be run parallel to allow you to view both the trendline data trend and the Channel data trend at the same time. Thankfully, online software makes it easier than ever to have Channels plotted on the same chart as trendlines, so you will be able to easily tell the difference between these two vital pieces of information.
You need to take advantage of one of the most overlooked yet precious trend indicator techniques available: looking at the big picture. If you focus on the trees, you miss the forest—if you focus on the water, you miss the ocean. This same principle applies to trends.
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