Forex Market Trends – How You Can Use It To Make Money On Forex Trading
Nov 3, 2009 currency trading
Forex market trends mean prolonged movement of the market in one specific direction, whether it is up or down. Different types of traders trade in different time frames. For a day trader a long term trend might last for a few hours. A medium term swing trader would consider a trend to be a price movement that lasts a week or two, while a long term trader look at price movements over a period of months or years.
Fact is, when you do day trading you make or lose money in the course of one day. If there is any question of a “trend”, then it would be a trend that perhaps lasts a few hours. You have to make quick decisions, move in and out of markets in a split second. If you take into account trading commissions, this market is best left to experts. Strangely enough, the excitement of day trading often appeals to beginners, who proceed to lose their fortunes very quickly.
Swing traders have a somewhat longer time frame in which they trade. For them a trend in the market is an upward or downward price movement that goes on for a few days or weeks. Although it’s very easy to look at a chart and see that the price has been going up for a week, using that as a basis to assume it will be going up for another week might just be slightly flawed.
The third category of trader is the long term trader. They are not really traders at all, but should actually be called investors. They would only buy a currency if underlying economic factors (fundamental factors) indicate that the currency is on a long term upward trend. If the reverse is true, they would sell it (or go short in trading lingo). They do use technical indicators from time to time, but then over a much longer time frame than either day traders or swing traders.
The day trading industry has spawned a whole set of ‘technical indicators’, mathematical formulas trying to predict the next movement of the market. The underlying reasoning behind all technical indicators is that the future will in some or other form be determined by the past. This is also the biggest inherent weakness of any technical indicator. The moving average, for example, is used by many traders as a signal to buy or sell. The argument is that if the price of a currency for the car moves above the moving average for a certain period, it will continue to climb for some time. The trend will continue. Trending indicators, who actually try to identify a trend in the market, are more sophisticated tools, but even here the future is extrapolated by looking at the past.
Long term traders prefer to call themselves investors, and most of the time they only look at fundamental factors to make buying or selling decisions. Banks and other investment houses do, however, often make use of basic technical indicators like the six month moving average of a currency.
Three popular chart types used by traders are line charts, candlestick charts, and bar charts. Line charts simply connect closing prices over a period of time. Candlestick charts show opening and closing prices, as well as the high and low point for the day in a colored bar. Monochrome bar charts only show the opening and closing prices.
A final note: Anyone who ever develops a system to clearly indicate the start and predict the end of forex market trends will become an instant billionaire. Clearly nobody has done so yet, otherwise all of us wouldn’t still be looking for the holy grail of trading!
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Tags: currency trading, Foreign Exchange, forex, stock market, stock trading
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