Trend traders enjoy the luxury of first identifying market direction prior to executing a trading strategy. Today we will review the basics of trend identification. Traders enjoy trading trends to take advantage of extended directional market moves. This is especially true in the Forex market where trends can last for days, weeks, months, or even longer.
If a trader can find the direction of the trend, it can exponentially increase the likelihood of having a successful trade. To begin our discussion on trend trading basics, we first need to be able to identify two types of trends.
Today we will begin with finding both an uptrend and a downtrend using a daily chart. Identifying an uptrend is the first skill we need to tackle before trading directional markets. An uptrend can be defined as a market that makes a series of higher highs and higher lows.
Since the first low pictured at. Notice how the pair has now made a series of four higher highs as this uptrend has progressed. This is indicative of a strong trending move and our trend is expected to continue as long as our lows and highs continue to increase in value. Uptrends are the perfect environment for finding buying opportunities.
As seen in the daily graph above each time the NZDUSD has moved temporarily lower, it has found support prior to moving on to higher highs. Regardless of the strategy used, trend traders will continue to buy this uptrend until it concludes with the creation of a lower low. The second trend we should learn to identify is the downtrend. This process is similar to finding an uptrend but the methodology is reversed.
This time we are looking for prices to continually decline. From the first labeled high at 1. This chart has offered many selling opportunities while showing exactly how long daily trends may run. As long as prices continue to head lower, traders will continue to apply their trend trading strategies on the EURAUD.
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