Forex Trading: Trend Strategies
The tendency in the market to move in one specific direction is called the trend of the market. There are two trends, which are commonly seen in forex market: an upward trend (when the prices of the currency increase almost every day) and a downward trend (when the prices of the currency reduce almost every day).
Once the trend has been spotted, the trader can jump onto the direction of the trend and then the market does the rest to make the transaction profitable. This can be a great approach to enhance profits when you have a forex broker that offers an attractive forex bonus for new traders. Price movement of a currency pair is the biggest indicator of trend strength: If the pair is making higher highs and higher lows on a regular basis then it indicates upward trending pair, and if the pair is making lower lows and lower highs on a regular basis then it indicates a downward trending currency pair.
Indicators of Trend:
There are age-old technical indicators in the currency market which are used to identify the trend by seasoned and amateur traders alike:
- Moving Averages: A line graph of average prices over a time, is called moving average. The most commonly used are 50-day, 100-day and 200-day moving averages. Flatline graph indicates a ranging market, while an upwardly angled depicts upward trend and a downwardly angled graph shows a downward trend.
- Moving Averages Convergence Divergence (MACD): It fluctuate above and below zero. MACD above zero indicate an upward trend while below zero indicate a downward trending market.
- Relative Strength Index (RSI): RSI is another indicator which oscillates between zero and 100. It doesn’t spot the trend but provides buy and sell signals in a trending market. RSI above 70 indicates overbought market and below 30 indicates oversold market, and reversal is near.
- On Balance Volume (OBV): Increase/Decrease in OBV indicates increase/decrease in prices of the currency pairs. If OBV is showing uptrend then the prices are going to follow OBV, but if OBV is flat or decreasing, suggests prices are near a top.
Trading in the market with 100% accuracy is a distant dream, but one can increase the probability of making profits if he can correctly spot the trend, and understand some technical indicators better to buy/sell.