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Identifying the Forex Trend

Identifying the Market TrendIdentifying the Market Trend & Identification Systems

The accurate recognition of a strong Forex market trend can lead to the accumulation of major trading profits. Forex currencies trend very well, in long directional moves. During these extended Forex trends, the likelihood of making profitable trades is significantly increased.


Distinguishing Market Trends

There are two main trend types: the (i) primary, and the (ii) secondary trends:

(i) Primary Trend

The Primary Trend is the major trend in the market. It can last for weeks, months, or even years, and includes several short-term secondary trends. According to the Dow Theory, the primary trend has a strong impact on the secondary/minor trends within the same market.

  • The long-term goals of key central banks, and especially the FED, play a major role in the creation of these primary trends

(ii) Secondary Trend

A secondary trend is less significant than a primary trend and can last for hours, days, or weeks.

  • These secondary trends are usually moving in the opposite direction of the primary trend. That includes short-term corrections, take-profit periods, or bear market rallies.

Ranging Markets

Secondary trends can also occur in flat markets. This means moving towards the boundaries of a specific range. When the price reaches the upper/lower boundary, the market retraces in the opposite direction, and a new secondary trend commences (ranging market).

Technical Analysis Overlays and Indicators

Overlays, Indicators, and Oscillators

Overlays, Indicators, and Oscillators

Technical Analysis is a set of tools and techniques used either to identify the market trend and/or to identify if the market is trading in overbought or oversold levels. Here are the basic categories and tools of technical analysis traders use worldwide.

  • Overlays

  • Price-based indicators

  • Volume-based indicators

  • Market and Breadth Indicators

Hundreds of different indicators are available today. Most traders nowadays use technical analysis inside MetaTrader4. Other trading platforms offer a wide variety of indicators, such as the NinjaTrader platform, which includes additionally astonishing charting capabilities. Even Ms. Excel can be used as the basic framework for implementing Technical analysis.

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Important Technical Analysis Indicators

Here is a list of almost all popular Technical Analysis Indicators and Overlays. These tools may be used by all kinds of traders: Forex Traders, Stock Traders, Commodity Traders, etc.


■ Overlays

Overlays are incorporated within price charts:

  • Support (↓_ ) and Resistance (↑¯ ) Levels

  • Trend Lines (/ or \)

  • Channels (Two Parallel Trend Lines)

  • Pivot Points (The average value of High, Low, and Close Prices, for a certain period)

  • Bollinger Bands (A Range between 2 bands deriving from the Price of Standard Deviation)

  • Price Channels (The channel formed from the highest highs and the lowest lows)

  • Moving Averages (Very popular, Simple, or Exponential Moving Averages)

  • Moving Average Envelopes (Two simple moving averages forming a price channel)