What is the Trend Followed in Forex Trading?

Trend in real terms may be defined as trading in the direction of trend, thus ignoring the trading signals which are directing against the current trends. The trends would remain friendly until the traders treat them as friends and not doing anything against their will and desires.

Most of the current trends are defined by looking at the daily charts that include line charts, bar charts and candlestick charts etc. However, those traders who have small cash amounts define trends in terms of 4-hour chart and 1-hour chart. Anyway, daily charts have their own importance because if the hourly signals match with the daily trend, then there are all possibilities of a strong movement along the trend.

Most of the traders while examining the charts try to capture the low and high peak of the trade which is against the trend. This means that the trader is lacking the main concept and that is discipline. It is surprising that while the trader is investigating his own faults and errors, simply ignores his major mistake and that is trading against the trend.

To define the meaning of the trend in detail, let's take an example. You can explain the trend by taking the combination of four simple moving averages (MA). Suppose 5/20/40/60 is the four moving averages. Now if MA 60 is below MA 40; in other words MA 40 is above MA 60, then the trend is upward each time when MA5 crosses MA20 upward which means it is in the direction of the moving trend. On the other hand, if MS5 crosses MA20 in the downward direction, then signals are used only to close the previously opened position and vice versa.

In the chart given below, the red dots indicate the crosses of MA 60 and MA 40, whereas the red and blue lines denote the opening positions towards the current trends. Those traders who are in search of catching the peak price always open sell position near the blue lines. If the trader wants to open the position without the minimum analysis then he better go to places such as casino where people make the guesses but are not sure about it. Sometimes the MAs are not proving to be a good indicator but in terms of trend, they served as best trend indicators.

Here the green line denotes MA5 and red lines represent MA20. On the other hand, blue dot place the opening position towards the trend (MA20 is crossed by MA5 in the upward direction and red dot place the closing position (MA20 is crossed by MA5 in the downward direction).

In this chart, the blue dots depict the opening position towards the trend and the red dots depict the closing position. The basic idea behind the combination of four MA is that the small number pairs affect the relatively close trade and the big number pairs define the existence of the current trend. The purpose of the above mentioned examples is to remind you about the need of checking the direction of the trend before entering the market.