If a trader wants to go with the flow of the market, he needs to trade with the trend. Sometimes, this is seen that fresher find the crystal clear trend, but cannot able to stop themselves from forecasting the reversals and face difficulties. If they can just the trend simply, they will able to make more money. So, people are needed to understand the price movements to find out when the price will rise and when this will decline. There are six ways of understanding the trend. These are being discussed here.
The Line graph
Most of the investors use bars and candles to observe the chart patterns, but they forget about one of the most beneficial tool which is the line graph. The bars and candles provide complete information about what is happening on the chart. When people need to identify the trend, they are required to zoom out the line graph timely to see the scenario of what is going on. This is necessary to conscious of the overall scenario of the situation. So, a line graph is the better option for that.
Highs and Lows
To understand the price chart of the currency pair properly, investors need to use this. According to the trading analysis, when the market is in an uptrend, price of a certain asset have higher highs. This is because the purchaser are in majority and increase the value. On the other hand, if the market is in a downtrend, people have lower lows. The reason behind this is that the seller sells in the early stage and the purchaser does not show any sort of interest.
The moving average is one of the best tools for identifying the market direction. To analyze the direction of the market, people are required to consider some issues about the moving average. When the business gets a signal about the direction of the market, this indicator affects it. Moving average with small period and give the wrong signals as it reacts quickly to the short fluctuations in currency pairs. When the trend is going to alter, a quick-moving average can help the traders to close a trade quickly. On the other hand, the slow-moving average can give a late indication of the direction of the business field. For the trend identification process, you can rely on the 100 and 200 day SMA as they provide very accurate dynamic support and resistance.
Channels and the Trend Line
Channels and trend lines help to recognize the direction of the market and also helps to understand the range market. This also helps to find out the changes of the confirmed trend when investors see that the trend breaks out, they need to realize that a new one will emerge. The trend lines can be used by combining with the moving average because of the interrelated features. Try to draw these trend line in a valid way since faulty trend line can cost you heavily.
ADX indicator helps to determine the direction of the business field and the strength of the trend. This can also be combined with the moving average. There are two lines in it, +DI and – DI. +DI is the green line and -DI is the red line. When the red line is top of the green line, there is a downtrend in the market. On the other hand, when the green line is higher than the red line, there is an uptrend in the market.
The Trend Rider Indicator
This is based on the value action and the momentum which provide the reliable signals of the business field. Two components of it help to understand the direction. Firstly the background color changes and gives a heads up. The investors should find out the selling options when the background color is red. If a person adds the trend rider with the traditional non-theoretical analysis, pattern trading, and breakouts, he or she will able to analyze the business field properly.