Forex Trading Tips - Determining The Overall Trend
By James Woolley
One of the golden rules that you should follow when trading the forex markets is to always trade in the same direction as the overall trend. This will ensure that even if your entry point is mistimed, you may still finish in profit if the trend continues. So how can you find out which direction the price is trending for any given currency pair?
Well the easiest way is to simply look at a basic price chart (without any technical indicators at all). If the price has been steadily rising and is much higher at the far right of the chart, then it’’s obviously trending upwards, and the reverse applies for a downward trend. However unfortunately it is not always that simple.
In a lot of cases you will find that the price is fluctuating wildly and trends will come and go all the time. So that’’s why it’’s often useful to plot a few technical indicators to help you decide which direction you should be looking to trade.
The first indicator I can recommend is the supertrend indicator. This is not one of the more common ones but it can be downloaded into your platform if you don”t already have access to it. All it is is a moving trend line that is either green (indicating an upward trend) or red (indicating a downward trend). So you can instantly determine the trend on both the current time frame and any other time frame that you wish to look at.
Another useful aid is the moving average indicator, and more specifically the exponential moving averages, which I find to be the most useful. By plotting both short-term and long term EMAs, for example the 20, 50, 100 and 200 period EMAs, you can get a good impression of the current trend, particularly if they are all moving in the same direction at the same time.
As with the supertrend indicator you should not only apply these indicators to the current time frame that you are using, but also to the longer time frames to give you the long-term trend.
For example if you are trading the 5 minute chart, you may wish to glance at the 15 minute chart to see the wider picture because you don”t want to go long on the 5 minute chart, for instance, if the price is clearly trending downwards on the 15 minute chart because you”re not putting the odds in your favour.
So the point is that there are lots of ways you can determine the trend, whether you use moving averages, the supertrend indicator or indeed any other indicator. The key point is that you should always trade in the same direction as the overall trend to maximise your overall profits.
About The Author
Click on the following link for free forex tips and strategies, including the exact 4 hour trading strategy that James Woolley uses himself to trade the markets:
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