TRENDS ARE YOURE FRIEND UNTIL THE END!
Why Do Trends Exist and Are They Reliable?
Ideally, consumer and market psychology is the primal constituent behind the persistence of a market trend. In following the Herding financial psychology, traders deliberately sell at low prices in a market that suffers from fluctuating price levels. This leads to a much lesser price continuing within the market, resulting in more sellers constantly reducing their own prices to compete with the market.
On the other hand, the Confirmation Bias identifies the potential market direction in the future, validating their hypothesises with correlating market evidence, resulting in a confirmation of their pre-evidenced idea. While this might work out for some market analysts, a lot of the propositions for future market behaviour can be incredibly faulty due to biased reports and incorrect data analysis. Thus, adhering to the Confirmation Bias in understanding trends does portray some risk factors that may end up in businesses losing money. Therefore, while trend trading does reap inordinate monetary gains, it is still a volatile subject if taken a misleading step.
Trend Trading in Forex
To truly attain financial gain from the operating your marketing strategy on the basis of trend trading, you might find a significant pressure on board with your business. Forex trading is an incredibly complex market activity and demands a certain level of forbearance. Your awareness of market tactics and trend analysis needs to be in one sense, ‘top-notch’. You also need to have a profound background in the work of strategical planning as there is a constant pressure to adapt and modify your business foundations to the trend activity. Only then can you be confident in approaching your market with an outlined figure of business strategy and earn more money.
Identifying The Trends in Forex
Typically, you assess the market trend through an understanding of the technical charts that present the market activity for a specified period of time. The markings on these trend charts represent either a continual level of high or low trading ranges and these trends persist on for more than weeks, months of even a year, depending on the circumstance of the market.
Forex typically consists of two types of trend tendencies: a bullish trend and a bearish trend.
- Bullish Trend
The bullish trend represents the higher bottoms and top lines on the Forex charts, where the bullish trend follows along a trend line that joins with the price bottoms on the Forex chart. Therefore, whenever there is a new price movement within the bullish trend line, the price level is expected to succumb to a bullish direction.
- Bearish Trend
Contrastive to bullish trends, the bearish trend identifies the lower tops and lower bottoms of the Forex charts and it is illustrated through a diagonal line running through the top. Similarly, a new price interaction following the bearish trend line would mean that the price is adherent to a bearish direction.
How to Trade with The Trend in Forex
After a full understanding of the trend tendencies prevalent in Forex charts, traders will have to analyse the period of ‘swing highs’ and ‘swing lows’ that determine the direction in which the market is trading.
The market trend line will always move in either an upward or downward direction, where any time that the market dives down and then progresses on to initiate a higher trend line, the lowest point which the market reaches is denotative to a swing low in the Forex charts.
Similarly, the highest point of trend activity attained by the market is what traders regard as a swing high. Both swing highs and swing lows are a common feature in the Forex charts and should be identified when working to determine the direction by which the market is moving in its trend line.