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Understanding Trend Analysis - Part 1
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Listed below are several trend following techniques;
understand its use in charting and how they are to be
implemented.
Topics covered are:
- What are trends and the different types of
trends.
- How to draw a trend line.
- Trend movements and trend channels.
- Support and resistance levels of a trend and how
to identify them.
I. Trends
The use of trends is to determine the relative
direction of prices in a market. They are identified as uptrend,
downtrend or flat. Without a trend, prices will remain flat and
unchanged. For trading to be profitable, movements in price must
occur or trend. FOREX, though a very trendy market has many
explosive short-term price movements that can lead to significant
profit opportunities. There is a popular saying among investors,
“the trend is your friend until the end”. Keep this in mind when
trading.
A. Up trend – In an up trend the base
currency is appreciating in value.
B. Downtrend – In a downtrend the base
currency is depreciating in value.
C. Sideways Trend – The price are moving
within a narrow range and are neither appreciating or depreciating
in value.
A sideways trend represents an area where prices
move in a flat and narrow range for several days or weeks. This type
of market movement is often termed a period of congestion.
Rapid price movements usually follow a breakout from a period of
congestion, most of the time in the direction of the original
trend.
Note: In FOREX, profit is possible in both
market directions. You can buy or sell a currency against another
and profit from price fluctuations regardless of trend.
D. Trend Classifications – Within a trend
there are smaller trends that make up the overall trend. And they
can be classified as long-term (periods of one month and longer),
medium-term (one week to a month) and short-term trends (24 hours to
one week).
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