To be successful at Forex trading you need to be able to identify a trend, and then work out from that information when is the best time to buy or sell. Most Forex traders spend their entire trading careers analysing the markets in an attempt to figure out when the perfect moment arrives. Unfortunately, understanding the psychology of the trading markets is not always so easy.
Understand Trends
If you plot your Forex data on a chart, you will notice a pattern emerging. There are likely to be spikes up and down, but when data is plotted over longer periods of time, the graph smooths out and trends emerge. Sometimes the trends are not easy to identify; in other cases, such as when the price is rising steadily, market trends are pretty obvious. Identifying the right trends to help you predict what the market is likely to do in the future is the key to Forex trading success. If you decide to use an app to do this, read the reviews first.
Forex trends are upwards, downtrends, or horizontal because of minimal movement in either direction. Trends can be long-term, short-term or intermediate. Over longer periods of time, you may get a series of short-term trends making up an overall long-term pattern of trading.
Once you understand how these trends work, you can trade with them and use them to your advantage. If you try and work against the trend, you will lose money.
Identifying Trends
There are many ways to identify current trends in the Forex markets, but the best one for beginners is to learn chart basics. Trend charts are rather like a weather forecast in that the information today is used to forecast what will happen in the future. Charts work on the principle that history usually repeats itself and a current pattern is a good indication of what will happen next.
Chart Basics
• The Candlestick chart has been around for several hundred years. It displays a wealth of information about high and low prices of the day.
• The Head and Shoulders chart predicts that prices will fall once the pattern is at completion. If the chart reverses the opposite is true and currency prices are set to rise.
Plotting information on prices and trades will give you an insight into current market trends. Once you have identified a trend, you can decide where you want to enter the Forex market. This can be done automatically. All you have to do is set an entry order and once the price you select is available, your order goes ahead.
Planning an Exit Strategy
Forex trends don’t last forever, so it is vital that you have an exit strategy in place. For example, if you decide to stop trading based on a low point predicted by your current trend chart, use a stop order to set your exit position.
Risk management is very important when trading on the Forex market. There is also a potential for huge loss, but by managing your risk and identifying trading trends, you can minimize your losses.
