Trend analysis is one of the fundamental elements of successful work in the international Forex currency market . It is based on a detailed study of price charts with the subsequent application of technical analysis. In other words, a trend analysis is an understanding of what should happen in the future, looking at what is happening and what has happened in the past. The methods of this type of analysis are also successfully used to assess the demand for goods and services, and to forecast sales, and to assess the demand for certain goods or services.
Trend is the basis of such a tool as trend analysis. This term refers to the course of the market price on its chart in any direction. It can be classified into three types:
- The so-called "bullish" or uptrend . This trend indicates a clear increase in prices.
- The so-called “bearish” trend, or a downtrend. Accordingly, this suggests that the price is falling.
- “Flat”, or sideways trend. The price moves in a fairly narrow range. Usually it is preceded by a sharp rise or fall in prices.
Also, the trend can be classified according to time intervals: short-term, medium-term and, accordingly, long-term. The latter can last several months. Medium-term - a couple of weeks. Short-term - a maximum of several days or even hours. It is advisable to start a trend analysis by gradually reducing the timeframe. That is, you need to start price movement analytics from the largest time period, smoothly moving to a shorter one.
In an event such as trend analysis, several main tasks can be distinguished.
First, you should decide on the direction of the trend in the future. Secondly, at least approximately estimate how strong one or another tendency for price development is. To solve the first problem, trend indicators, channels and lines are used. To solve the second problem, traders usually use graphical models and some indicators.
Any trend in itself causes at least a minimum trading volume, and understanding this can greatly simplify the forecast. Forex - the market is extremely dynamic. In case of trend strengthening, trading volumes will increase. When prices roll back (that is, a decline in trend strength), trading decreases. If the trend does not match the expected trading volume, then this is a sure signal of the weakness of the price movement.
For a successful event such as trend analysis in the Forex market, you need to follow some fairly simple rules:
- You need to open deals only in the direction of the trend. This is one of the most important rules. There are ways to catch price reversals and work with them, but in this case, the risks will increase significantly. The price will rather follow the trend than change it - another tenet of the Forex market.
- The trend can be considered active until the moment when there are visible signs of a price reversal. This may be, for example, a breakdown of the resistance line or support, the release of important news.
- Do not try to intuitively predict a trend reversal and open deals against the current trend.