How To Trade In The Direction Of The Forex Market Trend

Market is dynamic.Therefore, a forex trader must possess a good and dynamic  trading system in order to adapt to the idiosyncratic,vibrational ,and translational movement of the market price.A forex trader needs to know the resultant direction of the market trend within certain period of time.This is crucial because the real meat is in the trend.Either you are a bounce trader or a breakout trader,I admonish you not to trade against the prevailing  trend.

The question that most traders ask from time to time is "How Can One Know The Trend?". The answer is not far-fetched.There are many trend-indicating tools and indicators.For example,

The immediate trend is up if the last support is higher than the one immediately preceding it.Also, the trend is said to be upward if the last resistance is higher than the one that came before it.That is a series of higher supports and higher resistances.

We shall use trendline to elucidate this assertion.Briefly, a trendline is a straight line drawn on a forex chart to connects either two or more supports or two or more resistances.It can show both major and minor trends.

From the diagram above,it can be seen that a blue straight line connects S1 and S2. This is a good example of an uptrend. It is an uptrend because S2 is higher than S1 and R2 is higher than R1. Also,we see another straight line whose colour is red.This one connects R2 and R3. It is important to note that R3 is lower than R2.Hence this is downtrend and the red line is a bearish trendline while the blue line is a bullish trendline.

Still on the chart above,We know that price defined an uptrend from S1 to R2. A steady fall occurred from R2 to S3 which pierced and passed through the blue line and continued downwards. When price pierces through a bullish trendline and moves down, we usually say that the trendline is broken. Such scenarios usually suggest in-flush of sellers and out-flush of buyers.However, we observed that price moved down as as far as S3 retraced to R3 and resumed the fall until S4 leading to the formation of another trend which I call minor trend.I call the red line a  minor trend because S4 failed to go beyond S1 and price eventually moved from S4 to R4(breaking the red trendline).The major trend is the blue line because its first support (S1) remains unbroken despite the threat posed by the sellers.The minor trend is the red line because S4 could not exceed S1 before the bearish trendline breaks.

 From the diagram above,it can be seen that a red straight line connects R1 and R2. This is a good example of an downtrend. It is a downtrend because R2 is lower than R1 and S2 is lower than S1. Also,we see another straight line whose colour is blue.This one connects S2 and S3. It is important to note that S3 is higher than S2.Hence this is an uptrend and the blue line is a bullish trendline while the red line is a bearsh trendline.

Still on the chart above,We know that price defined a downtrend from R1 to S2. A steady rise occurred from S2 to R3 which pierced and passed through the red line and continued upwards. When price pierces through a bullish  trendline and moves up, we usually say that the trendline is broken. Such scenarios usually suggest in-flush of buyers and out-flush of sellers.However, we observed that price moved up  as as far as R3 retraced to S3 and resumed the rally until R4 leading to the formation of another trend which I call minor trend.I call the blue line a  minor trend because R4 failed to go beyond R1 and price eventually moved from R4 to S4(breaking the blue trendline).The major trend is the red line because its first resistance (S1) remains unbroken despite the threat posed by the buyers.The minor trend is the blue line because R4 could not exceed R1 before the bullish trendline breaks.

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The advantage of this set-up is that it avoids trading against the strong trend and also reduce over-trading.

If one can clearly identify major and minor trends in the market, than it becomes more sensible to trade in the direction of the major trend and ignore the opportunities to trade against the major trend.

Remember, once a level remains unbroken, then it defines the the trend.That somply means that  a trend is defined with respect to a level that sustains it.Hence, every support sustains an uptrend while every resistance defines a downtrend.A downtrend is questionable when a resistance is broken.Similarly, an uptrend cannot be explained when a support break.

I hope this helps alittle.Is your forex trading account in trouble? Or  are you just new to his world of trading?

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