What is trend analysis?
Trend analysis is one of the fundamentalelements of successful work in the international currency market Forex. It is based on a detailed study of price charts with the subsequent application of technical analysis. In other words, trend analysis is an understanding of what should happen in the future, looking at what is happening and what happened in the past. Methods of this type of analysis are also successfully used to assess the demand for goods and services, and to forecast sales, and to assess the demand for certain goods or services.
The trend is the basis of such a tool as trend analysis. This term refers to the course of the market price on its chart in any direction. It can be classified into three types:
- The so-called "bullish", or an uptrend. This trend indicates a clear increase in prices.
- The so-called "bearish" trend, or downward. Accordingly, this indicates that the price is falling.
- "Flat", or lateral trend. The price moves in a fairly narrow range. Usually it precedes a sharp rise or fall in prices.
Also, the trend can be classified for temporaryintervals: short-term, medium-term and, consequently, long-term. The latter can last several months. Medium-term - a couple of weeks. Short-term is a maximum of several days or even hours. To start a trend analysis, it is desirable to gradually reduce the timeframe. That is, you need to start analyzing the price movement from the longest period of time, gradually moving to a shorter time interval.
In such an event, as a trend analysis, there are several main tasks.
First, it is necessary to determine the directiontrend in the future. Secondly, at least approximately to estimate, how much this or that tendency on development of the price is strong. To solve the first problem, use trend indicators, channels and lines. To solve the second task, traders usually use graphic models and some indicators.
Any trend in itself causes at leastthe minimum volume of trades, and understanding this can greatly simplify the forecast. Forex - the market is extremely dynamic. In case of strengthening the trend, the volume of trading will increase. When the prices are rolled back (that is, the decline in the strength of the trend), trades decrease. If the trend does not match the expected volume of trades, then this is a sure signal of weakness in price movement.
To successfully conduct such an event, as a trend analysis in the Forex market, you must follow some fairly simple rules:
- You need to open deals only in the directiontrend. This is one of the most important rules. There are ways to catch price reversals and work with them, but in this case the risks will increase significantly. The price will rather go on a trend, than will change it - one more postulate of the market Forex.
- The trend can be considered active until the moment when obvious signs of a price turn are visible. This can be, for example, breakdown of a resistance line or support, an important news outlet.
- You should not try to intuitively predict the trend reversal and open transactions against the current trend.