Trends and Charts Used In Forex trading.

by Lyndsay Wilkinson

Trends

The Forex markets is one of the few markets that seems to repeat its patterns over time, this is called trending. The patterns and trends are consistent and it is a reliable way to judge what the market may do in the future. It is very important to understand that prices move in Trends and those traders who remember the phrase "The Trend is Your Friend" and trade with the trend are usually more successful. Finding the trend will help you become more aware of the market direction.

When first looking for a trade, always find the trend and trade with it, not against it. This applies even if it takes days or weeks for a new trend to become obvious. The most common form of technical analysis is looking at the charts and drawing trend lines Finding the trend will help you become more aware of the market direction. A trend is usually when 3 or more lows line up. A market that is trending up is making a series of higher highs and higher lows and you can draw a line connecting the bottoms (roughly), this is a support line.

The market is trending down when it is making lower lows and lower highs, if you draw a line connecting the tops you have drawn a resistance line.

This applies to any time frame, althought the trends might be different.

Charts

There is not one time period that makes more money than the others.It is a personal decision based on many different things. Many traders do not want to sit in front of their screens for hours.Accordingly Traders have different times they wish to trade in, some are comfortable using 1 and 5 minute time frame charts others prefer 15 min or 1 hour charts placing 4 to 10 trades daily and others prefer to place a trade and let it run for several days, weeks or longer.

One successful method that I follow is look at 3 different time frames When reading the charts. The reason for this is the largest time gives a general over view of what is happening, the direction of the market, then zooming in to the next level shows what is going on more recently and when you should enter the market and the third and closest time frame is the one where you would monitor your trade.

Depending on your chosen trading time the 3 different time frames can be any combination. A daily chart might show a downward trend but the 5 minute charts could show an upward trend and the 1 minute charts show a downward trend, these charts would be of no interest to anyone leaving a trade to run for weeks. Again there are software programs available to help identify trends and placement of orders. I believe it is useful even with automated programs to have an understanding of the charts and trends.

There are 3 main types of Charts: Candlestick charts. Bar charts. Line charts.

They all come in many different time periods, 1 minute, 5 minutes,10 minutes,30 minutes, 1 hour, 2 hours, 4 hours, 1 day, 1 week and 1 month plus others.

With the bar chart each bar represents one period of time (as above) and on each bar there are 4 marks. The highest point reached in that time frame, the lowest point, the opening point and the closing point. Those 4 points tell you what has happened in the market for that time.

The candlestick charts give exactly the same information with the candlestick body changing colour on a high(bullish) and changing back on a low (bearish) market

The line chart simply charts the direction of the market moving up, down or sideways. You usually have a choice of what sort of chart you want from the broker of your choice.

I prefer to use the candlestick charts, but that is a personal choice.

Trade in the time frame you feel comfortable with using the chart of your choice. There is no right or wrong time frame and there is no right or wrong chart.

Good luck with your trading.