Making profit in the Forex market is possible by different methods. Any of them, one way or another, depends on the actions of the largest players in this market - market makers. The sum of the actions of market makers forms the current market sentiment - the market trend. Determining the current trend is an indispensable part of the daily work of traders. We will consider this part of the work in more detail.
It is necessary
A basic understanding of what the Forex market is in general and price charts in particular
Instructions
Step 1
The concept of "trend" in relation to the Forex market means the prevailing direction of change in the exchange rate of one currency relative to another. The trend can be upward (bullish), downtrend (bearish) or sideways, otherwise called "flat".
In bullish and bearish trends, there are always areas when the price moves in the opposite direction to the main one for a short time. Such areas are called "correction".
Step 2
Flat, on the other hand, consists entirely of such short sections of multidirectional movement, from which it is impossible to single out an unambiguous upward or downward trend.
Step 3
Different methods are used to determine the current trend, but in any of them a time period will be a mandatory input parameter. It is customary to distinguish three main time intervals of price changes: a long-term trend (from several months to several years), medium-term (from a week to several months) and short-term (within one, maybe two days).
It is not difficult to understand why the period under consideration (“timeframe” in the jargon of traders) is so important: for example, short-term parts of price movement against the current trend of the annual chart on the weekly chart will not be short-term price corrections at all, but full-fledged trends with their own sections of “pullbacks”. Corrections on weekly charts, in turn, will be classified differently on hourly price charts.
The choice of the time interval depends on the type of trade used, and the type of trade is determined by the available opportunities - what instruments are available, what amount is involved in the trade and what fraction of it is permissible to risk in one deal. These aspects of trading are considered by capital management systems ("money management") and risk management systems ("risk management").
Having decided on the time interval for identifying the trend, we, in fact, will perform the most important part of the task of identifying the current direction of price movement. After that, it is enough to visually evaluate the charts of the selected timeframe to see the direction of the trend.
Step 5
There are many options for making profit using the trend ("trading systems"). In order to formalize the rules of their systems, the authors formulate different options for identifying direction and trend using technical indicators. Oftentimes, these formal rules only obfuscate what is already obvious. And, nevertheless, most traders (especially novice traders) prefer to trade according to rules clearly formulated by someone.
In this case, the trader should first decide on the trading system, and it should contain the rules for determining the trend, which the author of the system considers most suitable for the instruments involved.
