Forex trends are The phenomenon of price fluctuations in the market when it is moving in a certain direction. The important task of investors is to determine which trend the market is in and how long that trend will last. Identifying the trend in trading will help investors to have a basis to apply a Forex trading strategy according to the previously determined trend, thus reducing risks and optimizing profits. A reputable forex broker is where investors trade and more or less profit from it when a new trend is identified. So the trend? What is forex?? How to determine the most accurate market trend? In addition to candlestick patterns and price patterns, below kiemtien.com will provide some forex signals that use technical analysis to identify trends.
Forex market trends overview
In the last 2 years, the world was affected by the epidemic, making the economy unstable, many businesses or establishments had to stop working. However, in the forex market, the price of gold, oil or the price of the Japanese yen generally tends to increase during periods of instability in the global economy. This is great information for traders who know how to trade and identify forex trends. And identifying market trends is an extremely important factor for successful investors. As long as you identify the market trend and follow it, you are already half successful.
There will be 3 trends in the Forex market that are most used by investors in trading: uptrend, downtrend and sideways.
A simple way to identify a trend is to use one of the following methods:
- Dow theory
- Using EMA lines
- Trendline Đường
- Using pricing channels
Trend formation and 3 phases of a major trend
To identify the correct trend, you must understand the principle of trend formation in trading. Based on Dow Theory, in the main uptrend, there are 3 stages of formation: accumulation phase, sustained expansion phase and overcrowding phase. According to bearish forex market analysis, it will be called distribution phase, sharp decline phase and desperation phase respectively.
Accumulation period
During this phase, the market is usually on its side for a long time or moves slowly or very slowly, even close to the low. Typically, in the accumulation phase, investors have little information on the market or have not shown signs of being very positive or very negative. Investors with little capital are feeling discouraged and have decided to sell their shares. And big investors are buying, in part because they have a lot of excess capital, in part because they have a longer view, seeing the next positive market signals.
Expansion period, forming a sustainable trend
After going through a long period of accumulation, this is the time when almost all traders in the market notice the positive moves and start buying. The general market sentiment at the moment is positive, traders have started to buy and buy along with an increasing number of stocks. Those who have never participated in the market can never resist the lure of profits. It creates a strong uptrend, which pushes the stock price up quickly.
excessive climax
Right now the market is very “hot”. Most of the news released is good news, which attracts investors to buy money. Optimism has now turned into an overexcited state. However, during this period, large investors who used to buy a large number of shares are now gradually starting to sell them on the market. Others have doubts about the trend, so they are prepared to sell. Thus, Dow Theory posits that after an extreme climax, there is a period of distribution followed by a period of sharp decline and a period of panic. The trend reverses and ends here.
Some Ways to Identify Forex Market Trends Using Technical Analysis Lines
Identify trends based on smooth price charts
The simplest and easiest way to spot a trend is to look directly at a simple price chart. As such, it is best applied during periods of clear trending markets. Therefore, traders do not need to use any other indicators besides the price line. And this way you should use a line chart instead of a candlestick chart, it will be more visible.
Identify the trend based on the trendline
If price volatility is more complicated, longer lasting and there are better corrective waves, investors should draw a trendline for easy identification. Also, to identify support and resistance levels, a trader can add a line parallel to the trend line, creating a trend channel. The figure below is an uptrend channel. Likewise, traders can do the same with a downtrend channel.
See also: What is Trendline? Instructions on how to draw the most accurate trendline
At the point where the price crosses the trendline, the alert market may change from an uptrend or downtrend to a sideways state, or perhaps a reversal. Trendline price cuts are an important signal that traders should watch out for.
Identify trends based on moving averages (MAs)
One of the applications of moving averages (MAs) is to determine market trends. When the price fluctuates, it always fluctuates with noise, and the MA will show the price moving in a “smooth” way, helping investors to better see the price trend. The MA will be divided into 2 types: EMA (Exponential Moving Average) and SMA (Simple Moving Average).
From these two lines, the EMA will react to price faster than the SMA. Therefore, EMAs are used more by traders than SMAs, and they will follow the price more closely to move more and make accurate judgments.
There is a way to determine the forex trend to get the most accurate signal when using moving averages, which is to combine multiple MA lines as shown above. Based on this, if all the moving averages are in a clear uptrend, it is a very strong sign that the price is about to rally strongly. The same goes for the downtrend.
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Identify trends based on peaks and valleys
Recognize that higher and lower consecutive highs and lows will lead to an uptrend, whereas when consecutive higher and lower highs and lows are connected, a downtrend will occur. Equal peaks and valleys will determine a sideways trend, the market is not volatile. While identifying highs and lows can be very easy based on historical data, investors, especially novice traders, can sometimes find it difficult to identify the current trend, so this needs more practice. Another popular way for new traders to spot trends in price charts is to use technical tools to identify market direction. After identifying the bottom and the top on the chart, you can now also identify the support and resistance levels of the trade.
Use MACD indicator to identify market trends
Shows the difference between two exponential moving averages (MAs). After the MACD indicator line crosses the equilibrium line and crosses the 0 line from above, a downtrend will appear. On the contrary, when the MACD crosses the equilibrium line from the bottom, it can be identified that the market is about to have an uptrend. Also, you can combine the divergence between the MACD and the price line to determine the trend reversal point.
Use other indicators to identify market trends
In addition to the above mentioned identification methods, you can use many other technical indicators to determine the trend, such as the ADX indicator, momentum, etc. However, I do not encourage investors to use too many indicators. You will easily see the trend on the chart. And in many cases, you will be left wondering if the market has formed a new trend or just a temporary correction of the current trend. Therefore, using a combination of methods and indicators will give you more assertiveness when trading.
Conclude
So, we understand an important part of how to identify trends in forex. This is a skill that every investor needs to make a profit when trading the forex market. I hope that after reading this article you will gain useful knowledge and start to practice forex fundamental analysis skills and use the correct technical lines and indicators in forex competently.