Forex Market Trends – The Holy Grail Of Trading?

Do forex market trends even exist? Market trends that can easily be picked up and be used to make a large amount of money over a short period of time? Day traders will no doubt say there is no such thing – the market is 100% unpredictable over any period longer than one day. Swing traders and long term traders will disagree.

Day traders make or lose money in a very short period of time. For them a long term trend would be a price movement that lasts from 10:00 to 12:00 in the morning. Day traders often buy and sell forex within the space of a few minutes. If you consider the fact that you have to pay commissions on trading this type of market is best left to people who know what they do. However, because day trading is quite exciting one often finds that beginners are attracted to this type of market. They very often lose a lot of money within a very short period of time.

Swing traders follow so-called “swings” in the market. Medium term movements that seem to form some sort of pattern…. Moving up for a few weeks, sometimes stabilizing at a certain level for a while, and then moving down again. It sounds easy enough to follow the trend in this type of market. The problem is, any unexpected economic news might cause the swing to turn around and move in the opposite direction very quickly.

Day traders rely heavily on what is called “technical indicators” to help them make trading decisions. Most of them have sophisticated charting software to visually represent market movements. The simplest technical indicator is probably the moving average. If you draw a basic chart, showing when the price of the currency moves above or below the moving average, it can be used as a trading signal to buy or sell that currency. ‘Trending indicators’ is another group of indicators that are highly popular. Many traders swear you can in the first place pick up a trend in the market with one of these, and also predict when the trend will run out of steam.

The tools of choice for day traders are called technical indicators. These are a series of mathematical formulas often displayed visually in the form of charts. All of them have one thing in common: they use the historical behavior of the market to try and predict future price movements. The most basic technical indicator is probably the moving average. A moving average charts gives one a good visual impression of the direction the price of a currency has been moving in over the past five seconds, or five years, depending on the time frame you are trading in. Another popular group of technical indicators are the trending indicators. They are more refined than simple averages, but still attempt to predict future ups and downs in the price by analyzing past behavior, and then trying to project that into the future.

Swing traders very often use technical indicators to decide when to buy or sell a currency. Many of them use fundamental analysis as well. This is a trading philosophy that looks at fundamental factors, like inflation, interest rates and economic growth to try and get a picture of where the market is headed. For example, if a country’s exports are climbing steadily, there is a strong demand for its currency, and it’s reasonable to assume that all other things being equal, the exchange rate of that currency will increase.

There are a number of different chart types being used by traders. The simplest is the line chart, which basically just connects the closing prices to each other. A favorite of many traders is the so-called ‘candlestick’ charts. A candlestick chart shows both the opening and closing prices, and the highest and lowest prices for the day in a colorful bar type chart. Bar charts only shows the lowest and highest prices of the day.

Forex market trends is a subject that often causes heated debate among traders. There are as many experts as there are traders. Some swear by “the trend is your friend”. Others do quite well with buying a solid currency like the Euro when its price is dropping, because they know it will sooner or later rise again.

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