Although the support and resistance phenomenon represent the limits, the observed trends direct you more simply towards the direction to follow.
Analyzing the trends basically means that a phenomenon observed in the past is likely to give indications on the phenomenon to come. To do so, you need to be able to see when a currency pair follows a trend and when it is not. This differentiation will help you to make the best choices and so maximize your chances of profit.
Identifying a trend means that you are able to determine, in a more or less precise manner, the direction that a certain price will follow. It is therefore judicious at this given moment to carry out a transaction following this direction
If, for example, a trend is in a bearish position, this means that the price is tending to fall. It is therefore the best moment to sell the currency pair concerned. To the contrary, if the trend is in a bullish movement, the price is rising and it is therefore advantageous to buy this same currency pair.
What characterises a trend?
A clear and abrupt movement of the currency pair price represents in itself a trend. It enables you to determine if the market is moving towards a bearish or a bullish trend.
Using the charts at your disposal, it is easy to notice a trend. It materializes through the formation of easily identifiable summits and valleys. When the trend is to the rise, higher summits and valleys can be seen (it is therefore time to buy) and conversely for a bearish trend, that is to say lower summits and valleys (it is therefore time to sell).
Caution! When the trend is not easily identifiable, we talk of a “quotation zone” constituted of price movements.
Generally, it is also preferable to follow the indicated trend when you start trading on online trading platform, like TradedWell, and not trade in the opposite way.
Strategies based on trends observation can be used in the short, medium or long term according to the period over which they are expressed. Once again, do not ignore your intuition. It will help you to make the most advantageous choices. Trade only when an observed trend reaches your initial intuition and not the other way.
*Let us take a simple example
In the chart displayed below, two major trends can be observed on the EUR/USD price per one month periods. A bullish trend can be observed from June 2007 to June 2008 which was immediately followed by a very strong bearish trend from July to November 2008. A great trader will have succeeded in anticipating this trend inversion and made a maximum profit from it.
Once again, it is important here to understand the vocabulary related to the trends observation. One will therefore hear about a “bear market” in the case of a falling trend and a “bull market” in the event of a rising trend.