Last Updated on Wednesday, 30 March 2011 09:13
Written by Ross Mullins
Wednesday, March 30th, 2011
What is the trend? Good question and a common one among forex traders, but tough to answer. I am going to give you my best effort.
The trend can be defined as the general direction a currency is moving over a period of time. I think most traders can get onboard with that. But what period of time is best?
First, let’s discuss identifying trends. The simplest way to visually recognize a trend is, higher highs and higher lows define an up trend and lower highs and lower lows define a downtrend. Keeping that in mind, pick a chart, any chart, and view the highs and lows. What are they doing? You have just identified a trend!
To further “define” the trend we can draw trend lines. This will be an artistic impression of the trend. Every artist is different, so every trend line may be drawn differently. That’s ok! The fact is, if you know what it represents, then that is the most important point. But I would suggest that once you devise a method, consistency is the key. Do it the same way all the time, build your strategy around that method, and be consistent. If you are constantly changing the rules, is diminishes the usefulness of the rules. My preferred method revolves around simplicity. Higher lows means that an uptrend is having difficulty going back down, so I want to recognize the lows with the trend line as you see below on the NZDUSD daily chart. And the opposite would be true for a down trend. I want to represent the fact that the down trend is having difficulty going back up, so I draw the trend line on the tops of the highs.
Click Image for Larger View
Now that we can see the trend, what about the time period? What about long, medium/mid and short term trends? I define long term trends as (more…)
