Why is it important to learn how to identify trends?
Learning to identify trends is one of the most important aspectof any forex trader’s training program. This is your signal that the fx market is forming a constant move, either up or descending, and you can make money from it by initiating a trade. The well-known saying ‘the trend is your friend’ is at the centre of this strategy.
Utilizing trends to profit from Fx trading may seem just very easy. No doubt, it is a simplistic method, but it works … provided the trader can identify the difference between an upcoming trend and a simple fluctuation. That is where the skill, experience and indicators will help. But really it is a very easy strategy and you shouldn’t try to complicate it.
There are several different means of identifying a trend applying either charts and indicators or market knowledge . Creating trend lines on a candlestick chart is probably the easiest way. You can distinguish triangle patterns that will anticipate a breakout in one direction or the other, and match them against other indicators like the MACD indicator. It is also wise to ensure your pattern on charts for different time periods, e.g. match monthly against weekly charts etc.
You don’t need to know all the different methods for distinguishing a trend. Perfect one or 2 proven methods and you have all you need to make profit. Remember that all methods have their plus and their minus, and it is the overall profit or loss over a period of time that really matters. Do not worry about one loss, and control your risk so that a few losses in a row won’t have a big effect on your account balance or on your self-assurance.
Experience can make all the difference and that is why you are always advised to practice on a demo forex account before trying out your method on the real market. Traders with many years of experience can frequently identify patterns without even knowing that they are doing it. They don’t need to try hard to recollect the past data, but ample experience of observing and hands on trading in the markets gives them a strong understanding about trends that will frequently help them spot trends really fast. It is worth beginning to develop that experience prior to your attempt to trade with real funds.
In the beginning you might not be capable to take the whole of a trend from its opening point to its peak or trough. Actually, hardly any forex trader ever does this. You must hold back to ensure that the trend is forming. Also, never try to hold out until the end minute in order to grab every possible dollar from the trade. Set your profit target and be happy with it. For long term this will pay you better than trying to second guess the market.
Also, do not adopt any type of Fx trading system that relies on changing your position size depending on whether your last trade was a winner or loss. This could end up in catastrophe, as lots of bankrupted gamblers have experienced. If you have a good foreign exchange trading system your net profit will surpass your losses without depending on to guess work. Investing time in your forex trading education is the key to making money from foreign exchange trading.