Recognizing Trendlines in the Forex Market

By Andrew Daigle

Many a forex trader has proclaimed the foreign exchange market as ‘volatile’, especially after a large unexpected movement in the currency exchange rate. However, volatility doesn’t necessarily mean random, just that it is difficult to predict. Free of any forex indicators this is true, but with the help of trendlines you can navigate the uncertain waters of the forex market with relative ease. Simply put, trendlines are used to show the general direction and speed of the currency exchange rate.

The key to success in the foreign exchange market is learning how to identify market trends and act on them. Finding a trend and exploiting it over several hours, days, or weeks can create a financial return that satisfies even the most ambitious forex trader. Regardless of what forex trading strategy you use, mapping trendlines will help you exploit trends for maximum profit. Whether its stop loss limits, buy and hold high, or great and small thematic investing, trendlines can be a forex trader’s best friend.

The most important aspect of relying on trendlines in the currency exchange market is following the trend. Under no circumstances should you fight, or trade in the opposite direction of the trend. A common mistake made by newcomers to the forex market, is to trade in the wrong direction, which can lead to an unfortunate loss. Following trendlines, is just as important as using them. Stay away from any forex trading strategy that doesn’t require software that utilizes trendlines, because it can be the difference between trading tomorrow and going broke today.

For an inexperienced trader, trendlines provide a quick and easy illustration of when to buy or sell shares. If you’re looking for a low risk start to your career on the foreign exchange market, get acquainted with identifying and understanding trendlines. When dealing with potentially large sums of money, trendlines allow the currency trader to base his decisions on technical analysis, not just emotions like fear and anxiety. Success in the forex market depends on good decision-making, and trendlines allow your decisions to be analytical and accurate.

Identifying what the trend lines are telling you is the second most important step for any forex trading strategy. An uptrend illustrates the movement of a currency exchange rate when the overall direction is going up. This lets you know that the demand for your currency is greater than the supply, giving you a unique opportunity for financial gain. Officially, an uptrend occurs when each peak and trough is higher than those identified in earlier trendlines. Your goal is to exploit a strong uptrend until signs arise that it is about to reverse.

Just as important as identifying an uptrend, so too is recognizing a downtrend. A downtrend occurs when each peak is lower than the ones found in an earlier trend, which means that more people are selling a currency than are buying it. However, when a forex trader notices that an exchange rate is heading toward a downtrend, it is his duty to be cautious about entering any new positions that could adversely affect current investments.

About the Author

Andrew Daigle owns many successful websites including ForexBoost , a free Forex educational site to learn Forex trading strategies and also endorses Supraforex as one of the best automated trading systems.