Traders from all over the world buy and sell currencies in the hope of profiting from exchange rate fluctuations.
Forex trading requires the ability to quickly analyze price charts and other factors based on the expected movement of the exchange rate. One way to be successful is to be able to identify solid trends that have a high chance of continuing.
It is necessary
- a computer;
- The Internet;
- analysis software.
Instructions
Step 1
Open a Forex charting program and create a price chart for whatever currency you choose, identify the "currency pairs" that are potentially beneficial to you.
Step 2
Identify the peaks and valleys on the price chart. They are the "points" at which the exchange rate changes direction, even if temporarily. For example, if prices move up and then start to decline, that means a peak. Likewise, if prices fall and then retrace higher, this forms a "recession."
Step 3
Look at the last price action on the chart and find the most recent high. Determine the previous high formed before the most recent high. Likewise, find the last two lows on the chart. If the chart clearly shows all of this as a pattern of "higher highs and higher lows", then you can safely identify the trend in the Forex market in the face of this currency pair.
Step 4
If instead you see a pattern of “low highs and lower lows,” this is a solid downtrend. These simple patterns are the basis of trend recognition techniques pioneered by Charles Doe in Dow Theory nearly a century ago. Traders today continue to use this technique to determine the trend in the Forex market.
Step 5
Draw a straight line on the price chart connecting all recent lows if you see an uptrend emerging. These "trend lines" provide additional help in identifying trends. If the trend is declining, draw a straight line connecting all the highs. In solid trends, it is easy to draw or imagine a straight line on the graph, and some graphics programs allow you to draw directly on the graph.
