Forex uptrend

Learn Forex: Trend Trading Basics.

by Walker England.

Article Summary: 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.

Learn Forex – NZDUSD Daily Uptrend.

Identifying an Uptrend.

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. Pictured above is an excellent example of the NZDUSD pair, which is currently residing in an uptrend. Since the first low pictured at .7454 the pair has advanced as much as 1021 pips! 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.

Learn Forex – EURAUD Daily Downtrend.

Identifying a Downtrend.

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 . Both highs and lows should be moving lower, much like we can see in the EURAUD chart above. From the first labeled high at 1.4334, price has made a total of three lower lows while declining a total of 2730 pips.

The decline in the EURAUD depicted above, has taken place over the last two years. 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.

---Written by Walker England, Trading Instructor.

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How to Spot and Trade Uptrends in Any Market.

Trends are a trader's friend, if you know how to spot and trade them.

While the phrase "the trend is your friend" is cliche, there is truth to the statement. but only if you understand trends and how to trade them. If you don't understand trends, traders who do will take your money, which you probably won't find friendly at all.

There are uptrends and downtrends. This article will focus on the price structure of an uptrend, what events cause uptrends to reverse, and how to trade an uptrend.

Price Structure of an Uptrend.

An uptrend is composed of two types of price waves: impulsive and corrective. If a stock rallies from $10 to $10.50, falls to $10.25 and then rallies to $10.60, each of those three movements is a price wave.

Impulse waves are larger: $10 to $10.50, and $10.25 to $10.60. Corrective waves are smaller: $10.50 to $10.25. This is how trends are created, and how the price makes progress in one direction or the other. If there is an impulse wave up, followed by a corrective (smaller) wave down, then the price has made overall progress to the upside. The price trend continues to advance as long as impulse waves occur to the upside.

The attached chart shows this in action. The line chart of the SGDJPY forex pair shows the price advancing to the upside. The price moves lower, but that wave is smaller than the prior wave higher. An uptrend is, therefore, a sequence of higher highs and higher lows.

Moving from left to right on the chart, the impulse waves each reach a higher price than the last impulse, and the lows of each correction also move up.

See Four Trending Indicators for tools which may aid you in seeing the current trend direction.

What Reverses an Uptrend.

If an uptrend is a sequence of higher highs and higher lows--or impulse waves to the upside and smaller corrective waves to the downside--a reversal is when those criteria are violated.

If the price makes a lower high or lower low, that signals the uptrend is in trouble. If an impulse wave occurs to the downside and is followed by a smaller up wave (lower low, lower high), that's a sign the uptrend is in trouble.

Trading requires adapting to new information as it comes available. The price may move into an uptrend, give a signal the uptrend is in trouble, but then revert to an uptrend again. Or the price could move sideways or into a downtrend. In either case, isolating in which direction the impulse waves are moving will give you the trend direction. If up and down impulse waves are the same size, then the price is moving in a range (sideways).

When impulses are to the upside, favor buying on corrections. When impulses are down, favor short selling on corrections.

Trading an Uptrend.

Trends occur across all time frames and all assets. They can be viewed and traded on the short-term (tick and one minute charts) and over the long-term (daily, weekly, and monthly charts). While the chart shown is a daily chart, the same concepts apply when looking at a one-minute chart or weekly chart. All that changes is your trading time frame--if viewing a one minute chart trades are taken to capture small trends lasting hours (rare), minutes, or even seconds.

On a weekly chart, traders are seeking trades that could last months or years.

Once an impulse wave occurs to the upside (an upside move larger than the prior down waves) it's possible a new uptrend is starting. Therefore, when a correction develops it likely won't drop all the way down to where the impulse wave started (because corrective waves are smaller). Therefore, we can plan on buying during that corrective wave, based on the assumption that the price will have another impulse wave to the upside.

There are multiple techniques for entering a trade during a corrective wave. Fibonacci retracement levels aid in isolating areas where the correction could stop and reverse--a great entry point. Another method, which can be used in conjunction with Fibonacci levels or other technical indicators, is to wait for the correction to stop falling, move sideways and then move back in the trending direction.

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That signals the correction may be over, and the next impulse wave is beginning. Examples of this strategy are provided in How to Day Trade Stocks.

Every trade requires a stop loss to manage risk (see Where to Place a Stop Loss), and an exit strategy for taking profit. During an uptrend, the assumption is that the price will make a new high. until it doesn't. Therefore a target--an order to exit your trade with a profit--is placed near the former high. In a very strong trend (very big impulse waves) the target is placed above the prior high. In a weak uptrend (impulse waves barely bigger than corrections) the target is placed just below the prior high.

Final Word on Uptrends.

An uptrend occurs when larger waves (impulses) occur to the upside, and smaller waves (corrections) occur to the downside. During uptrends consider buying during the correction--technical tools and strategies help isolate when a correction may be ending. Utilize a stop loss order to control risk, and also plan for how to exit a profit trade, likely using a price target.

Uptrend and downtrend in Forex.

Change video quality to 1080p HD.

In the Forex training video above you will see two trading charts. The chart on the left shows an uptrend and the chart on the right shows a downtrend.

When we see the market trending in the upwards direction, we call this a BULLISH market. The reason why is because traders who buy or ‘go long’ are called BULLS. So, when we see an uptrend we know that the bulls are in control. Once we join the highs of the previous trend with a line, you will see that the new uptrend gained momentum at the point at which this previous line was broken. This is when the downward movement completely ran out of steam and the market changed direction.

When we see the market moving downwards, we call this a BEARISH market. The reason why is because traders who sell or ‘go short’ are called BEARS. It is at this stage that the bears have seized control. If we join the lows of the previous trend with a line, you will see that the new downtrend started to gain momentum at the point at which this line was broken. The bulls have totally lost control at this stage and the market had no choice except to fall further.

Sideways movement.

When the Forex market has no sense of direction it tends to consolidate. It is at this point that bulls or bears have no real power so trading can be minimal. There are Forex trading strategies that can take advantages of this but the majority of traders stay away until a new trend is born.

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Chart Basics (Trends)

2.1 Level 1 Forex Intro 2.2 Level 2 Markets 2.3 Level 3 Trading.

3.1.1 Technical Analysis for Forex 3.1.2 Moving Averages in Forex 3.1.3 Identifying Trends in Forex 3.1.4 Resistance & Support 3.1.5 Double Tops And Double Bottoms 3.1.6 Bollinger Bands 3.1.7 MACD 3.2.1 U. S. Dollar 3.2.2 Euro 3.2.3 Japanese Yen 3.2.4 British Pound 3.2.5 Swiss Franc 3.2.6 Canadian Dollar 3.2.7 Australian/New Zealand Dollar 3.2.8 South African Rand 3.2.9 The Employment Situation Report 3.2.10 Unemployment Insurance Weekly Claims 3.2.11 The Fed 3.2.12 Inflation 3.2.13 Retail Sales 3.3.1 EUR-USD Pair 3.3.2 Trading Rules 3.3.2.1 Never Let a Winner Turn Into a Loser 3.3.2.2 Logic Wins; Impulse Kills 3.3.2.3 Never Risk More Than 2% Per Trade 3.3.2.4 Trigger Fundamentally, Enter and Exit Technically 3.3.2.5 Always Pair Strong With Weak 3.3.2.6 Being Right but Being Early Simply Means That You Are Wrong 3.3.2.7 Know the Difference Between Scaling In and Adding to a Loser 3.3.2.8 What Is Mathematically Optimal Is Psychologically Impossible 3.3.2.9 Risk Can Be Predetermined; Reward Is Unpredictable 3.3.2.10 No Excuses, Ever 3.3.3 USD-JPY Pair 3.3.4 GBP-USD Pair 3.3.5 USD-CHF Pair 3.3.6 Leverage 3.3.7 Fundamental Speed Strategy 3.3.8 Carry Trade 3.3.9 Money Management 3.3.10 Forex Futures 3.3.11 Forex Options.

5.1 Short Term 5.2 Medium Term 5.3 Long Term.

When a collection of data points are plotted on a chart, you may start seeing the general direction in which a currency paid is headed towards. In some cases, the trend is easily identified. For example, the chart clearly shows that the currency pair is rising over time:

On the other hand, there will be instances where trend is much more difficult to identify:

Therefore, more commonly, trends tend to operate in a series of gradually moving highs and lows. Thus, an uptrend is a series of escalating highs and lows, while a downtrend is a series of descending lows and highs.

Figure 3 is an example of an uptrend. For this to remain an uptrend, each successive low must not fall below the previous lowest point or the trend, if it does, it is deemed a reversal.

Figure 4 – USD/CAD.

Types of Trend.

There are three types of trend: Uptrends, Downtrends and Sideways/Horizontal Trends (The latter occurs when there is minimal movement up or down in the peaks and troughs). Some chartists consider that a sideways trend is actually not a trend on its own, but a lack of a well-defined trend in either direction.

Trend Lengths.

Along with these three trend directions, there are three trend classifications that have to do with time duration in which the trend is taking place. A trend of any direction can be classified as either a long-term trend, an intermediate trend or a short-term trend. For forex trading, a long-term trend is composed of several intermediate trends. The short-term trends are components of both major and intermediate trends.

Take a look a Figure 4 to get a sense of how these three trend lengths might look.

Trendlines.

Trendlines represent a charting technique, which a line is added to represent the trend in a currency pair. Drawing a trendline is as simple as drawing a straight line that follows a general trend. Trendlines can also be used in identifying trend reversals.

As you can see in Figure 5, an upward trendline is drawn at the lows of an upward trend. Notice how the price is propped up by this level of support. You can now see how this trendline can be used by traders to estimate the point at which a currency pair will begin moving upwards. Similarly, a downward trendline is drawn at the highs of the downward trend. This will indicate the resistance level that a currency pair experiences when price moves from a low to a high. (To read more, see Support & Resistance Basics and Support And Resistance Zones - Part 1 and Part 2 .)

It is important to be able to understand and identify trends so that you can trade and profit from the general direction in which a currency pair is heading rather than lose money by acting against them. Now that you know a little about candlestick charts and trend, we can introduce you to one of the most popular chart patterns: Head and Shoulders.