When it comes to the Forex market, one of the things youโll notice is that there are always trends. Sometimes there are simple trends, other times you encounter something more significant. The truth is that not all trends will last an equal amount of time. And if you see a trend that might provide you with great advantages, itโs important to hop on it and generate profit, if you can. With that being said, itโs a good idea to learn what are these Forex market trends, how they appear and why that happens in the first place.
What is a Forex market trend?
The important thing to note with Forex trends is that they are the average change in the exchange rate of a currency pair. You are tracking this over a longer timespan, hence the reason why itโs named a trend in the first place. Whenever you have a positive change that stays constant for a while, itโs named an uptrend. But if the trend is going down, that becomes a downtrend.
When do these trends change? It will always depend, but a lot of the time, if the market trends in the same direction for a long time, it will end up changing the trend. In addition, when you see that prices tend to change quite often, that might signal thereโs a new trend coming. The way you check these trends is you can analyze the moving average of the currency pair.
Changes will, usually, be directly proportional when compared to the moving average values. You always need to study these trends, mainly because they will offer a great window of opportunity. You never really know how much these trends will last. So if you see a trend that seems positive, hopping onto that trend might not actually be a bad idea.
However, it still makes a lot of sense to study the market. Checking informative content about the market and learning from it will always come in handy. It does make sense to use tools that study trends and which automatically notify you of changes. After all, there will always be upward trends, just like there are downward trends. Knowing how to address these and the best way to do it will come in handy a lot more than expected. It will also make it easier for you to narrow down problems, but also figure out the best steps to achieve the right goals in the long term.
What types of trends can you find on the Forex market?
There are different types of trends, as you will notice below. Mainly, there are strong trends, healthy trends, but also weak trends. A lot of the time, these will be subsequent, other times they will not, and they will just move from one to the other based on market changes. Itโs a unique shift and also one of the most interesting things you can follow as a trader on the Forex market.
Strong trends
In the case of a strong trend, you have the market rising on and on, to the point where it grows a lot more than expected. When you have a strong trends, thereโs more pressure on buying rather than selling. If this happens, thereโs no real chance of a price pullback. So if you encounter this type of market trend, a lot of the time it can be a good idea to open longer trades. You still need to study the market, because changes can appear quite often, to the point where a new trend arises and you have to adapt to that as well.
Healthy trends
A healthy trend will arise when you still have buyers in control. However, unlike the strong trend for the Forex market, here you have more pressure on selling. The price retracement level is a bit higher, and in general, during this trend you want to go for shorter trades. Itโs still a good trend to encounter, but there are certain challenges on the selling side.
Weak trend
During a weak Forex trend, there is no real selling or buying pressure. Itโs a rather problematic trend for a lot of traders, because here you are not encouraged to trade due to the market being weak. If you encounter a weak trend on the market, naturally the best approach is to wait and see how things evolve. Sometimes the evolution will be upward, other times it will be backward. And thatโs the thing that you need to take into consideration a lot of the time.
Minor trends
A minor trend will happen for a very short amount of time. In fact, the Forex market sees minor trends quite often, either for a few hours or even a few minutes. If you want to be an intraday trader or a scalper that buys low and sells high, these minor trends can be a great idea. A lot of the time, you want to go for minor trends in order to make some short term gains. Granted, these trends might not be the most profitable ones, but they can be great for those that want to focus specifically on short term trends and which can net them a profit.
Major trends
These major trends tend to last for a very long time, either months or years. If you are a position trader, then you place orders who deliver very good gains in the long term. With that in mind, it can be a solid option to consider for some that wants to go over the long term gain rather than short term profits. Not that a minor trend has anything wrong with it. But major trends will usually be more profitable, due to their length. That doesnโt make them perfect however, yet they will give you more value in the long term.
How can you identify Forex market trends?
The thing you have to keep in mind with the Forex market here is the fact that these trends shift very often. Not only that, but trends will change a lot of the time to the point where they can be hard to follow. Thankfully, there are certain methods that you can use in order to track the market and ensure that everything is fine here.
Visual inspections
A visual inspection is great because you can see the highs and lows, which in turn makes it easier to narrow down on a specific trend. You can find a bullish trend a lot easier if there are consecutive highs and consecutive lows. With that being said, you can use technical indicators like Bollinger Bands, Moving Averages and others in order to spot the market direction. They are not perfect, but they will offer enough information to help you take the right decision regarding the market. On top of that, it also makes a lot of sense to track consecutive trends, because those will usually offer you trade positions with a lower risk. If you see a lot of fluctuation, that can become very challenging and itโs not always the best trade approach that you can have.
Try to combine different indicators
You can easily identify market trends if you start combining multiple technical indicators. The idea to combine them is very handy, since you have less worries of inaccuracy. Instead, with more info, you can be closer to an accurate prediction. Granted, these are still predictions, but they will offer a very good idea of the market, what that brings to the table, and the challenges that you will be facing. Or in some cases, you can find great, untapped trades and trends that you can take advantage of right now. Itโs simple stuff like that which can help you increase your chances.
With that being said, itโs possible to also combine the price actions with technical indicators. That can also help, because you can get a better confirmation of the market direction. If the currency pair is making a high on the market, you know that the market is going towards a bullish approach. The information you gain by combining different indicators is always valuable, and itโs one of the best methods you can use to track and monitor Forex market trends.
Check the highs and lows
If you want to better understand the market direction right now, you can check the lowest and highest price levels on the market. As soon as you see the reversal, you check the high price and that will be the peak. There will also be the opposite situation, where you will have a situation where the lowest possible price will appear. With that being said, the currency pair prices will always signify a trend on the market. Sometimes the trend is very easy to understand, other times less so.
Start clustering the price levels
You will have situations when you get currency pair prices trending around a key level price. That can happen over a prolonged lifespan, depending on the situation. When you see a price cluster like this, it will usually end up signifying a trend, and itโs a good idea to learn more about it. Clusters that form around support levels showcase a reversal of the bullish market, in that case you need to place long orders. But if you have clusters that are forming around the resistance levels, you have a bearish market more suitable for shorter orders.
The best ways to identify a Forex market trend
You always want to assess the opening and closing prices, but also the price range for the currency pair. Sometimes it will go upward, other times it will go downward. In general, if you see the currency pair maintaining a higher value, then you will have an uptrend. With that in mind, sideways trends can also arise on the market, and those tend to be particularly challenging. Thatโs because during those trends, you will have the same price trending for a longer timespan.
At the end of the day, the main focus here is to check short term movements. Those might end up generating certain profits, so the market can be profitable even them. But in general, you will have less profits when something like that happens.
What are the best Forex trend indicators?
- Average National Index is a great indicator that will show you a value between 0 and 100. That way, you will have a good idea if the trend is weak or strong. It becomes very useful since you will know whether the trend is very low or very high.
- Moving Average Convergence Divergence is an indicator that measures the momentum and trend for the market. You will see if there is a long or short term moving average.
- Bollinger Bands will study the market volatility. That way you will be able to recognize trends and see whether the market is stable or if itโs too volatile to invest in at this particular time.
- Relative Strength Index is an indicator that checks the market momentum. Aside from that, it will also identify the market zones that are either oversold or overbought. Thatโs the thing you need to keep in mind, since you will know what zones to avoid and what else you can focus towards.
- Moving Averages finds the average price for currency pairs in a dedicated timespan. Then it will compare the market price to the current levels. You will see whether there are changes, if you can buy now, or if itโs not a good ok to buy/sell not and instead you want to wait.
- Double Bottom Indicator is a good one to have because it shows great changes in the direction of the trends. That also means it can showcase an uptrend.
Using this information can be a great idea and itโs one of the best ways to assess and make the most out of Forex market trends. The Forex market will always have trends and fluctuations, thatโs not uncommon. What you want to do is to make the most out of these trends and ensure that you gain the desired value. It can take some trial and error to narrow down the right trends, and once you learn more about them, you can start trading accordingly. Using indicators is particularly useful, because it will make it easier to study the market and keep risks under control as you trade!
