Identifying 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.
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).
Multiple Trends in the Same Market
The same market can accommodate different trends, in different timeframes. The best approach for identifying these different trends is a 'Descending Approach'. That means commencing the trend identification on the higher chart by moving to lower charts.
- You can start on a Monthly, Weekly, and Daily Chart and then move to H4 and H1 charts
- Shorter timeframes can only be useful for optimizing entries/exits in the market
Forex Trend Duration
A Forex market trend can last for hours, days, weeks, months, or even a few years.
- Short-term (secondary) trends usually occur due to inefficiencies between demand and supply, and therefore, last for short periods
- A short/long squeeze in the market can lead to the creation of a short-term trend
- Long-term (primary) trends occur and evolve according to new fundamental data, and reverse due to key fundamental changes, therefore, they can last for years
Identifying the Forex Trend
The easiest and the most practical method to identify the market trend is to observe the series of highs and lows:
- A bullish market is a market that makes a series of higher highs and higher lows
- A bearish market is a market that makes a series of lower highs and lower lows
There are many additional methods and tools to identify the trend:
- Using Chart/Candlestick Patterns and seeking strong signs of continuation or reversal
- Using Harmonic Patterns and seeking the appearance of continuation/reversal patterns
- Observing how an exchange rate reacts when reaching major support/resistance levels
- Using the Fibonacci mathematics and seeking major reversal levels (0.618 in Forex trading)
- Observing the behavior of major Moving Averages, and especially as concerns their crossings (in a very strong trend, all major MAs are moving in perfect order)
- Using TA trend/volatility identification tools, such as the Bollinger Bands
Automated Systems for Trend Identification
These are some trading systems for easily identifying the trend and receiving trading signals. Keep always in mind that you must test any trading system for weeks on a demo account before starting to trade for real money. In the case of an MT4/MT5 trading system you can use the automated historical backtesting tool (built-in) on MetaTrader.
(1) Forex Trendy (All Platforms)
- Type: Trend Scanner (34 pairs in 9 timeframes)
- Signals: E-mail, Desktop/Sound Alerts
- Platforms: All platforms
- Cost: $37 for 3-months ($3/week)
Forex Trendy is a stand-alone Forex trade system that focuses on real price action. The system identifies trends without the use of indicators. The Forex Trendy scans 34 Forex pairs in 9 timeframes (between 1 minute and 1 month).
The system generates reports based on:
- Master Trend Identification
- Chart Pattern Recognition
- Pattern Break-Outs Recognition
- Flags, Triangles, and Trend Lines Recognition
Forex Trendy offers access to a dedicated members’ web page. These are the features of the member’s area:
- Visualized interface and 1-click customization
- Daily Reports (recognition of Flags, Triangles, Wedges, and Trend Lines)
- Trade signals based on 34 pairs and 9 timeframes
- Delivering signals via Email and Desktop Alerts
(2) EA Builder for Building Custom Systems (Manual/Automated systems for MT4, MT5, TradeStation)
- Type: Create Custom Trend Systems (All timeframes and all Pairs)
- Signals: E-mail, SMS, Desktop Alerts
- Platforms: MT4, MT5, TradeStation
- Cost: Free for Indicators / Paid only for creating EAs
The EA Builder is a powerfull system for the creation of custom trend indicators. The app is completely free for building trend indicators, easy to use, and does not require any programming skills.
EA Builder Features
- Completely free for building any indicator, only paid for building EAs
- Transforming any ideas into Indicators and Expert Advisors (Forex Robots)
- Compatible with MT4/MT5 and TradeStation platforms
- Trading Currencies, Stocks, Indices, ETFs, Bonds, and all Commodities
- Full technical analysis tools (Indicators, Oscillators, Trendlines, etc.)
- Full money management (MM) functions (such as spread and slippage control and timing any new position)
- Alerts via email, desktop, and SMS
- Suitable for building both manual and automated trade systems
- Can be used in unlimited Demo/Real accounts
■ Identifying the Forex Market Trend