Learning How To Identify The Overall Trend When Forex Trading
James Woolley
October 01, 2009
One of the most popular mantras you will hear in the forex trading industry is that you should always ensure that you trade in the same direction as the overall trend. However while this may sound overly simplistic, it's not always that easy to do because there are times when the trend is not immediately obvious. So how do you successfully determine the trend?
Well there are many different ways but the most obvious way is to examine the price chart of a particular currency pair and see which way the price is sloping. If the price is noticeably higher at the right hand side of the chart than the left hand side then it's clearly in an upward trend, and obviously the opposite applies for a downward trend.
However as I said before it's often not as easy as that which is why you may like to use one or two technical indicators to help you determine the trend. One of the best ones is the moving average indicator. I prefer to use exponential moving averages (EMAs) and will often plot the 20, 50 and 200 period EMAs in order to highlight the trend. If they have all turned upwards then this indicates a new upward trend and vice versa if they begin to slope downwards.
Another indicator that is very useful is the supertrend indicator. This isn't one of the most widely used indicators because it is not even included with a lot of charting packages, but it is a great help when trying to determine the trend because it's a line that's either green or red at any one time. A green line indicates a bullish trend and a red line indicates a bearish trend.
I like to use both the supertrend indicator and the exponential moving averages mentioned above because they really do help you to determine the trend at any given time. For maximum success you should apply these indicators both to the current time frame and to the lengthier time frames as well.
For example if you trade off the 4 hour chart, then it's often a very good strategy to quickly identify the overall trend on the daily chart as well in order to keep you out of trouble. This is because if the price is clearly trending downwards on the daily chart then any upward trend that may be apparent on the 4 hour chart may only be temporary, and therefore not a position that you would be able to trade with any confidence.
So the point I want to get across is that there are lots of ways you can determine the overall trend but my preferred methods are to use a combination of EMAs along with the supertrend indicator. That way by using these indicators across different time frames you should ensure that you will always be on the right side of the trend, and you will therefore increase your chances of making consistent profits from forex trading.
Click here for more information about a forex trading course that will teach you all the basics of forex trading, and to read a full review of the Forex Nitty Gritty course.
Well there are many different ways but the most obvious way is to examine the price chart of a particular currency pair and see which way the price is sloping. If the price is noticeably higher at the right hand side of the chart than the left hand side then it's clearly in an upward trend, and obviously the opposite applies for a downward trend.
However as I said before it's often not as easy as that which is why you may like to use one or two technical indicators to help you determine the trend. One of the best ones is the moving average indicator. I prefer to use exponential moving averages (EMAs) and will often plot the 20, 50 and 200 period EMAs in order to highlight the trend. If they have all turned upwards then this indicates a new upward trend and vice versa if they begin to slope downwards.
Another indicator that is very useful is the supertrend indicator. This isn't one of the most widely used indicators because it is not even included with a lot of charting packages, but it is a great help when trying to determine the trend because it's a line that's either green or red at any one time. A green line indicates a bullish trend and a red line indicates a bearish trend.
I like to use both the supertrend indicator and the exponential moving averages mentioned above because they really do help you to determine the trend at any given time. For maximum success you should apply these indicators both to the current time frame and to the lengthier time frames as well.
For example if you trade off the 4 hour chart, then it's often a very good strategy to quickly identify the overall trend on the daily chart as well in order to keep you out of trouble. This is because if the price is clearly trending downwards on the daily chart then any upward trend that may be apparent on the 4 hour chart may only be temporary, and therefore not a position that you would be able to trade with any confidence.
So the point I want to get across is that there are lots of ways you can determine the overall trend but my preferred methods are to use a combination of EMAs along with the supertrend indicator. That way by using these indicators across different time frames you should ensure that you will always be on the right side of the trend, and you will therefore increase your chances of making consistent profits from forex trading.
Click here for more information about a forex trading course that will teach you all the basics of forex trading, and to read a full review of the Forex Nitty Gritty course.
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