Incorporating Technology: Leveraging Trends For Forex Profit In Texas

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Incorporating Technology: Leveraging Trends For Forex Profit In Texas – Trends are directional movements usually driven by fundamental factors that change markets over time. Identifying and correctly trading along with prevailing currency trends often leads to profitable trades.

Knowing how to recognize the different stages of a forex trend can be an invaluable asset for forex traders. Accurate observation of market trends occurring in the forex market and knowledge of their reversal can also translate into significant profits for disciplined currency traders.

Incorporating Technology: Leveraging Trends For Forex Profit In Texas

Incorporating Technology: Leveraging Trends For Forex Profit In Texas

This article explains how Forex trend trading works and how to identify the different stages of Forex market trends.

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A currency trend can be defined as the propensity of an exchange rate to trade in a given direction over a period of time. Forex trends can occur over long, medium or short term periods. Trends can also move in any direction, including up, down, and sideways.

Many financial markets traders are probably familiar with the market saying that “the trend is your friend” because trading along with the underlying trend usually makes a lot of sense. The strategies of many successful Forex traders largely depend on identifying market trends in Forex trading and positioning themselves to profit from the continuation of those trends.

Some Forex traders, often known as swing or momentum traders, intend to profit from trend corrections and reversals as well as trend following. They can learn to anticipate these countertrend exchange rate movements using momentum oscillators like the Relative Strength Index (RSI), Stochastic Oscillator, and Moving Average Convergence-Divergence Oscillator (MACD).

Depending on a currency trader’s preferred trading style, most trends can be first identified and then traded profitably as long as they persist. To do this, technical traders typically scan exchange rate charts for visual signs of a trend. They can also use various technical trend indicators that generate actionable trend trading signals for trade entry and exit points.

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When the exchange rate of a currency pair is trending upwards, there will usually be a series of higher highs and higher lows. After observing this pattern, a chart analyst can draw two trendlines, one through the set of highs and one through the set of lows.

These two trendlines can then be analyzed further to see if they are parallel. If they are, then a channel pattern is in the process of unfolding, which suggests that further movement in the direction of the trend remains likely as long as the trend does not reverse enough to break out of the channel.

Traders watching an ascending channel can aim to buy when the market approaches the lower trend line and take profits when it approaches the upper trend line. They could place sell trailing stops below the level of the channel’s lower trend line.

Incorporating Technology: Leveraging Trends For Forex Profit In Texas

If they noticed a descending channel on an exchange rate chart, then they could do the opposite, selling on rallies to the upper declining trend line and taking profits when the market drops to approach the lower trend line. Buy stops can be placed above the level of the upper trendline of the descending channel.

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On the other hand, if trendlines are converging, then a wedge pattern may be forming, which is a reversal pattern that serves as a countertrend indicator. The appearance of a wedge can indicate that trend momentum is waning, so an astute trader can plan a reversal in the opposite direction of the trend as soon as the market breaks out of the wedge. This move occurs when the lower trendline is broken in an uptrend or the upper trendline is broken in a downtrend.

Most traders tend to determine the direction of the main trend and then try to profit by trading in the general direction of the trend. Technical traders use a variety of trend-following tools, such as moving average (MA) crossover and price action, to increase their chances of trading profitably.

MMs are lagged technical indicators that smooth exchange rate data by averaging the exchange rate over a period of time. The time period Forex traders use to calculate an MM varies according to their preferred trading horizon, and can range from minutes to months.

When two MAs from different time periods — one short and one long — cross on an exchange rate chart, it can indicate that a temporary or long-term reversal of the exchange rate direction has occurred. Some traders use this as a trend reversal signal.

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To identify longer-term trends, traders often look at the 200-day MA plotted against the 50-day MA. Theoretically, the trend of the exchange rate would be bullish if the 50-day MA remains above the 200-day MA, but would turn bearish if the 50-day MA trades below the 200-day MA. Another popular MA pair that forex traders monitor for medium-term trends is the 10-day MA pair versus the 30-day MA pair.

Many short-term strategies also use MA crossovers to generate trading signals, although these MAs can be calculated for periods of minutes rather than days. For example, a day trader could use a 15-minute MM paired with a 1-hour MM and plotted on an hourly exchange rate chart.

While a pair of MAs and their crossovers can give useful indications about prevailing trends and their reversals, they can also give false signals in practice. Many traders will therefore wait for trend confirmation or reversal by another indicator to strengthen the trading signal.

Incorporating Technology: Leveraging Trends For Forex Profit In Texas

Keep in mind that the trend following MA indicator pair may not generate a reliable trading signal by itself, while the trend confirmation tool may only give you an indication of the trend. Using a combination of the two tends to provide a more reliable trading signal to incorporate into a trading strategy.

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For example, if both the chosen MA pair and the selected trend confirming indicator generate a bullish signal for a specific exchange rate, then a forex trader can look for opportunities to go long on that currency pair.

A popular indicator used by many technical traders to confirm trends is the MACD indicator. The MACD line is calculated by taking the difference between the 26-period exponential moving average (EMA) and the 12-period EMA. The MACD also includes a nine-period EMA of the MACD line known as the signal line. This smoothed signal line generates buy or sell signals when it crosses the MACD line.

To read this indicator, there is a bullish signal if the MACD line has crossed from below to above the signal line. When the MACD line moves from above to below the signal line, there is a bearish signal.

The relative strength of a currency in the forex market will generally reflect the economic strength of its issuing country. A currency can therefore look like a country’s stock when performing a fundamental analysis.

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However, since currencies are traded in pairs, the economic trends of both currencies in a pair need to be taken into account when predicting how the exchange rate is likely to evolve.

In general, a strong economy implies a strong currency. When investors recognize a country’s economic strength, they tend to feel more comfortable putting their funds in that country’s assets.

Certain countries also produce strategic assets such as gold and oil, the value of which can impact the relative value of the associated currency. Examples of these so-called commodity currencies include the national currencies issued by Australia, Canada, South Africa and New Zealand.

Incorporating Technology: Leveraging Trends For Forex Profit In Texas

Some of the key fundamental factors that can have a significant impact on the relative value of a currency and increase or decrease its exchange rates include the following:

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Bear in mind that surprises in any of these areas will tend to move the forex market much more than expected results.

R. N. Elliott proposed in his Elliott Wave Theory that trends generally unfold in a series of five waves or stages which he numbered from one to five. He called the odd waves that move in the direction of the trend “impulses”, while he called the even waves that reconstituted the impulses seen during the trend “corrections”.

Upon completion of the five-wave trend sequence, Elliott postulated that a larger countertrend correction usually begins, which unfolds into three or five waves that he used letters to mark.

The combination of these trends and corrective moves produces Elliott’s classic eight-wave sequence of trends and corrective moves. He theorized that these movements occur repeatedly and cyclically over all time periods, like a fractal, as markets progress through time. An outline of the eight steps in this cycle is shown in the diagram below.

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Expanded schematic diagram of an 8 wave bull cycle, with an initial 5 wave bull trend followed by a 3 wave zigzag correction. Source:

Forex traders and analysts using Elliott Wave Theory often visually analyze historical exchange rate activity on charts to see if they can identify the current stage or wave of a currency pair’s prevailing trend. They can use this analysis to predict how the market might develop in the future.

Markets that involve human participation, such as the forex market, typically feature several phases or stages of an overall bullish or bearish market cycle. Likewise, economies also expand and contract cyclically as they move from trough to peak growth over time.

Incorporating Technology: Leveraging Trends For Forex Profit In Texas

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