In order to make forecasts concerning prices for assets and analyze a situation on the market, it is necessary to be able to identify downward and upward trend in a foreign exchange graph. To learn to distinguish them from each other and not to confuse them with lateral movement is important for every novice trader at the beginning of his trade activity on Forex.
First of all, we should figure out, what features they have.
It is also called as “bullish one” and characterized by rising minimums and maximums of a price. In the graph an upward line of a trend is drawn from bottom to top through, at least, two price minimums. It is most visible on the long periods of time, that is to say, a four-hour graph will be more informative than a five-minute one. A global long tendency may be seen only on a big timeframe. Such trend has powerful borders, and a steep angle of its inclination shows an activity of players, who stimulate changes of prices.
It is important to recognize classic figures of upward trend, which may signify its continuation with a period of common corrections (declinations) or its reversal. In the first case one should open a transaction on purchasing, having waited a completion of rollback and continuation of a trend; in the second case on the trend top it is necessary to open a transaction on selling, being ready for a beginning of a new move.
In general, every upward tendency goes through three phases of growth:
This is a period of development of a trend, when an asset starts being bought by players, who focus on the results of market analysis. Experienced traders advise to make a purchase precisely at this moment.
At this time the growth of a trend and the accumulation of positions on purchasing are seen. Frequently, here traders, who forecast a further rise in the price based on technical analysis, become involved.
So called “sheep” – market participants, who follow the mass movement, or change their opinion on the basis of news – intervene in the game. They create a rush and risk, while opening trade positions. The point is that in this period a price reversal may occur at any moment, and it is considered to be unfavorable for making transactions on the market.
This type of movement is called “bearish one” by traders, and it is characterized by a gradual decrease of alternating price minimums and maximums. A trend line should be drawn through two or more price maximums, and a line in the graph will be directed downward. A “bearish” trend has the same growth phases as a “bullish” one, but in reverse order.
Figures of downward trend are the same as upward one has – they signify his continuation or even reversal. During the temporary upward price rollback you should make a sell as soon as it ends, and when the movement ends at its top you should make a purchase and catch the first wave of a new tendency.
Flat prevails on the market and occupies 80% of all time. At this period a small price band, which is limited to two horizontal lines, is indicated. Frequently such situation comes before a price signal – a trend movement. During the flat a price as if gathers its whole potential, and when flat ends, price jumps or drops. For each trader it is particularly important to learn to open positions, when a trend starts after a continuous flat.
It should be told, that an ability to identify an emerging trend movement – whether it be an upward one or a downward one – is highly significant for trade results of a trader. The optimal opening of a position and the increase of chances for a profit imply the correct identification of a trend at the beginning. That is why a novice on Forex should figure out the features of each trend movement.