Forex Trading trends are important for a trader, A Forex trader should not miss the opportunity to earn profit from any excessive rise or downfall. A slight rise may earn you profit in thousands but never blindly participate in any rise or fall. Invest only after doing technical analysis or taking help of an expert technical analyst so that you have an idea about the point at which the price rebound may be seen. Most valuable technical indicator is Trend lines. The concept of trend lines is very basic. Trend line is the connection of two or more closing price points. To draw a trend line you need at least two closing price points that can be connected to predict the future trend of the market but the trend line drawn from only two points is least predictive.
Different Types Of Forex Trading Trends
Trend lines determine tentative price point and do not guarantee for anything to happen. Trend lines determine the direction of price movement based on the previous price points. This direction may flat, up or down. If the direction of the price movement is up then it is Up-trend line, if it is down then it is down-trend line and if the price movement is in flat direction then it is flat-trend line. The difference between the closing price points is the time period and based on these time periods the trend lines are drawn for short term, medium term or long term. If the period is less than three weeks then it is short term, if the period is in between three weeks and six months then it is medium term and when the period is more than six months than it is long term.
Up-Trend line simply predicts the closing price point of any period in the upward direction. The importance of an up-trend line increases with every touching point. An up-trend line shows the support where investors can take risk to buy more. An example of an up-trend line is shown in the figure below.
Down-Trend line predicts the closing price point of any period in the downward direction. A down-trend line shows the resistance where investors should start selling. An example of a down-trend line is shown in the figure below.
Neutral or Flat-Trend line does not predict the closing price point in any fixed direction. Price points can go in both upward and downward direction that means trend line move sideways. Flat-trend lines do not show any strong resistance or support area. An example of a neutral or flat-trend line is shown in the figure below.
One should not invest 100% by seeing only trend lines because reversal is possible at any point. Reversal is possible in two ways.
If a Forex trading trend line going upwards suddenly starts moving downward then downward trend starts and this is a reversal.
If a trend line going downwards suddenly starts moving upward then upward trend starts and this is a reversal.
So the trend lines are best way to determine future trend and to minimize risk investors should trade in the direction of the trend line.