In the Forex market, trends reflect the average rate of price change over time. Trend is a useful indicator of where the market is growing, and provides an opportunity to take measures to achieve a specific goal. It is not surprising that traders consider trends to be their reliable partner.
How do you determine the trend?
Graphically, the easiest way to determine a trend is through various patterns formed by price. When it occurs in the Forex pair, price movements begin to form peaks and valleys in the price chart, which you can visually identify. Trendlines are one of the most common forms of technical analysis.
Different Types of Forex Trends
Trends warn us of the general direction in which prices are moving. Prices can move up, down or stay in place, as indicated by the types of trends. If there is no current trend, the cost will remain relatively the same. Without a change in price, you cannot trade profitably.
Currency trends can be divided into 3 types based on their direction: upward, downward (the well-known “bulls and bears”) and lateral. They can also be divided according to their duration: long-term, short-term and intermediate.
Uptrend
An upward trend means that the market is developing in an upward direction, creating a bullish trend. There is a price spurt with some periods of consolidation or movements against the prevailing direction. An uptrend is characterized by a positive rate of price change over time. Price movements on the chart form a series of higher peaks and valleys.
Trends continue until some changes to conditions or value are made. If the overall trend of the market is up, you should be careful about any positions that rely on a trend moving in the opposite direction.
Downward trend
The downward (bearish) trend in the foreign exchange market is characterized by a decrease in prices, with some periods of consolidation or movements against the prevailing trend. Unlike the uptrend, the downtrend leads to a negative rate of price change over time and signals the continuation of the downtrend. Value movements indicating this trend form a series of lower peaks and valleys on the chart.
The Forex market as a whole does not suffer from recessions, unlike other financial markets. Since selling is such a common occurrence, it is quite immune to downtrends in price. You trade one currency against another, which means that something always gets more expensive, even in times of financial or economic turmoil.
Side trend
A lateral trend (flat) is a horizontal price movement between support and resistance levels. This occurs when the market does not have a specific direction and, ultimately, consolidates most of the time.
The lateral trend is considered as horizontal lines passing between the ups and downs of the exchange rate. Such a trend can last from a couple of days to several weeks, after which the price can rise or fall. The direction in which the exchange rate moves after a sideways trend in the market is most often the initial direction prevailing before the trend has occurred.
We can say that currency prices are more stable during a sideways trend. This provides a starting point for investors with targeted trading strategies. However, the usual behavior of a trader during a side trend is to set a minimum until a new trend appears.
Short-term, long-term and intermediate trends
A long-term or major trend lasts more than a year. Intermediate or secondary can span from three weeks to several months. Short term lasts less than three weeks. Sometimes an intermediate trend can be a correction in the main trend. It itself can consist of a series of valleys and peaks, each of which can be defined as short-term trends.
It is best to look at long-term Forex trends on daily charts, intermediate ones on hourly and short-term trends on 15-minute charts.
The concept
Probably, trendlines are the main tool for technical traders. They are easy to understand and can be used in combination with any other tools.
By definition, a trend line is a band connecting two or more minimums or maximums with lines projected into the future. In practice, traders consider these advanced indicators and trade at prices that are responsive to them.
So, what can you do to make sure that the trend line you created reflects the current market situation?
Use limit values
You want to draw a line connecting two (or more) vibrational minimums or maximums. On the graph, these are peaks and valleys created by zigzag prices. As soon as you connect some peaks (or valleys) with others, you should make sure that the line is not broken by any candle between these two points.
For example, if you connect two vibrational minima, but between these two points the price has broken the line, the indicators will not be reliable.
Experts recommend placing orders a few pips above the support line or below the resistance line. Thus, if the price reacts before getting on the trend line, you will still have a chance to get into the deal. You must remember that if there are many traders involved in the market who are looking at the same price reflected in the support / resistance indicators, there is a chance that the orders will be stacked around these levels.
Use more points when building a line
As you can see, most guides refer to two or more highs / lows that make up the trend line. The reason why a larger number is mentioned is that these indicators may remain relevant far in the future or change the value several times. Between two points, a change and a return to the original position may occur. Trend lines do not exist constantly in the same form.
For example, you can draw a strip connecting any two points on the chart. You will create it, because in the last 50 values there were two different highs, and you drew a line between them. But in fact, this does not mean that such an indicator is an active trend line.
To really confirm it, you need to see that the price actually responds to a line built on the basis of the two previous points. In fact, a third high or low level is needed to truly reinforce the trend. After that, you can much better see the state of the market when the price returns to the trend line again.
Each time you see that the price is bouncing off one line, the likelihood that other market players also see this and adjust to changing conditions increases. This can help you make several profitable trades in a row (but remember that trend lines will not last forever). To avoid losing, you just need to correctly set stop loss. When will the forecast of the trend line be the most reliable? Provided that you can fix a larger number of fluctuations.
Buy in a bullish trend, sell in a bearish trend
A market trend is your regular partner. Bulls and bears must be considered without fail. This solid rule also applies to trade lines. For experienced traders, this means that you should only buy on bullish lines (support) and sell on bearish lines (resistance).
A bullish trend means that the price is moving up, so you should look for buying opportunities. These arise when value falls and approaches the line that caused the upward rebounds earlier.
The downward trend (bearish trend) means that the price has a tendency to go down, so you should look for opportunities to sell. They arise when value moves up and approaches the line that used to cause downward bounces.
Trading only in the direction of the trend allows you to use potential bounces as efficiently as possible. And although they will not always give you winning trades, successfully completed transactions should give you more pips than when trying to trade against the trend.
How to build a trend line?
As you can see, this is a very simple tool to use. You just connect the dots in the diagram. The above tips will help you draw them with a forecast for the future. Make sure that the lines you draw connect more than two highs or lows, and that they are not broken by the price between these points. Do not forget to find the third bounce to check indicators. In addition, make sure that you use the trend-based trading opportunity while shopping in bull markets and selling in bear markets.
How to show a line in a chart only in Excel?
As can be understood from the foregoing, a trend line can reflect the trend of data change in the near future. Therefore, it must be displayed on the chart for more convenient viewing and study. This can be done in Excel.
If you want to show a trend line only in a chart, you just need to first add a trend for it, and then hide the original datasets in the chart.
In Excel 2007/2010
The trend line in Excel of this version is created like this. Select a series of data on the chart, right-click. Select "Add Trend Line" in the context menu. Then specify its type and click on the “Close” button in the “Format” dialog box that appears.
Remember that users cannot add a trend line for pie charts in Microsoft Excel.
Select the data set in the diagram and right-click to display the context menu, then click “Data Format”.
In the dialog box that opens, click "Fill" in the left pane, and then select the "No fill" check box and click "Border Color", and then select "No Row."
Click “Close” and now only the trend line will be shown on the chart.
How to do Excel 2013?
Add a trend line to Excel 2013. To do this, right-click on the dataset. Specify the subpoint “Add a trend line” from the context menu. In this version of the program, it is also impossible to construct it in circular graphs.
Select a dataset and right-click to display the context menu, then click “Dataset Format”.
Then, in the "Data Format" panel, click the "Fill and Line" tab and select the "No Fill" and "No Line" checkboxes in the "FILL" and "BORDER" sections, respectively. Now in the chart only the trend line will be shown.
What indicators should be used?
It was presented above how trend lines are built manually using Excel charts. However, there are ways to automatically create them on the chart and get good results. This is especially important if in trading you work with several pairs of currencies simultaneously. If you make transactions with different denominations and using small time intervals, creating trend lines manually can be time-consuming and time-consuming.
It was to help such traders that True Trendline was developed. This is an indicator of trend lines, which builds them automatically, without the participation of a trader. To run this tool, you only need to install it on the chart used in trading. In addition, this indicator has some positive features:
- able to significantly save your time;
- the lines he constructed are always correct and valid, in contrast to the actions of an inexperienced trader who can make mistakes.
In addition, this tool is available completely free of charge, which can also be attributed to great advantages.
Since trend lines are an essential part of technical analysis, their proper application is necessary for every market player. If you do not have enough experience to create them completely manually, such an assistant tool is simply necessary for you.