At the dawn of stock trading, settlements were carried out manually. Computer technology has made life easier for the trader. Programs have been developed to determine the trend reversal. But to understand the signals given by programs, you need to know the basics of exchange trading.
How to determine the trend - the market rate, the price movement of the selected currency? Technical analysis - to help the trader. Working with charts will help determine the direction of movement.
What is a trend?
The deeper a person plunges into the elements of the FOREX market, the more terms and professional slang you have to learn. Once the word "trader" was not perceived by computer editors. Now the trader is a line from the Classifier of professions. The trader’s production slang will someday also go into dictionaries. In the meantime, the program editor rejects neologisms, although new words are already on Wikipedia.
In Forex time, the trend only moves forward, "east." But market participant bets communicate volatility to the movement. Price may rise, fall or move “sideways”. There are four common and accessible types of indicators of the direction of price movement. You can attach indicators to any available time frames. It all depends on the trading period chosen by the trader:
- short;
- medium term;
- long term.
Short-term is the period from one day to one month. Here the player "catches pips", does not move away from the screen during the day. The burden on health is great, and the result depends on the speed of reaction and composure of the participant.
The medium-term period lasts from one to six months. Based on the theory of wave analysis, one can predict whether the trend will be up or down, enter a trade and wait for the result. But do not stop controlling the situation. Sudden force majeure circumstances can make adjustments to the previously planned price move.
A long-term period, or “long-term” trade, conditionally lasts from a year to three. Longer periods are scary to plan. Politics constantly makes adjustments to the economy. How to determine the trend in real conditions?
Consider, for example, the dollar. In March 2003, the dollar headed for a fall, and moved for five years from 31 rubles to 23 rubles in June 2008. The depreciation of the dollar amounted to 26%. Here, observant people made a purchase, and for half a year they “raised” 50% of the profit. Then the dollar went into drift again for five years. And since July 2014, rampant growth lasted a year and a half, and patient traders skimmed off cream and sour cream in the form of 100% profit. Such interest cannot be found on any deposit. The reader will remember the political events at the indicated points of the trend change independently.
What did the attentive bidders see on the charts?
Trend line
Whatever elements the price course is noted on the chart - points, candles, bars - this will be a fixation of the lows and highs.
A straight line must be drawn between the two local minimum values. On an uptrend, minimum No. 2 should be higher than minimum No. 1.
The line between two local peaks, of which peak No. 2 is lower than peak No. 1, will show a downtrend.
Moving average line
This line in the text is indicated by the English letters MA from the words moving average.
Easy digression: productive trading without knowledge of the basics of the English language is difficult.
So, the moving average is a filter that cuts off random price fluctuations over a long period of time.You can build the average using the opening, closing, minimum, maximum, average prices for the selected time interval. More often they build on the closing price: among the pros, there is an opinion that the closing price more clearly reflects the trend of the day.
Two lines of moving averages
A feature of the method is the construction of two moving averages. One line is long, for example, with a period of 50 days (two working months), and the other line is short with a period of 12 days (two working weeks). It is necessary to monitor the position of the lines relative to each other. If the short is located above the long, then this is a growing trend. If the short line is below the long, then this is a falling trend.
MACD indicator
The name is an abbreviation of the English words Moving Average Convergence / Divergence - convergence / divergence of moving averages.
This trend indicator will not help fans of scalping - as long as the trader is about to close the deal, it turns out that it is time to go back. In the medium and long term strategy, the indicator will show the true direction of movement, not clouded by noise.
How to determine the trend using MACD? The point is the amount of smoothing. MACD uses three - fast, slow moving and the difference between them. The third smoothing is necessary to eliminate the influence of price jerks in response to the news background.
MACD works well with a pronounced trend. Growth is a bullish trend, fall is a bearish trend.
Trend reversal indicator
The trend is not forever, sooner or later a reversal is taking place. It is necessary to determine the pivot point as precisely as possible in order to make timely entry into or exit from the transaction. The most famous methods:
- There is nothing to buy and nothing to buy.
- Murray Levels.
- Candlestick analysis.
- Divergence - the difference between the indicator line and the price.
The author began his journey in trading with method number 1. I had to deal with the Bollinger band, stochastic, RSI oscillator before it became clear how to determine the trend change on the “Forex”.
Redundancy of purchases and sales
If prices rose quickly and high, then they say that the market is overbought. There are no more money in the accounts of buyers, everything went to purchase at current prices, and they are waiting for an adjustment down. If the price has fallen sharply, then they say that the market is oversold. No one wants to buy or sell at these points, because they consider the price to be unfair and are waiting for its change.
All complex constructions of ribbons, stochastics and RSI can be replaced by a simple forecasting method: if the price quickly rose or fell by 20-25%, you need to wait for the trend to change, to reverse.
Of course, there are exceptions, and rampant growth continues. Exceptions only confirm the rules.
Murray Levels
Mathematics provides the trader with many tools for analyzing statistical material. Based on early theories, new research methods are being developed.
Thus, the theory of Murray levels arose from the Gann square. The trader chooses a time period, usually 64 and 200, and builds a square, where the lower and upper sides are the support and resistance levels, respectively. The square is divided by thirteen horizontal lines.
Attention, now it is necessary to examine each line. Trend reversal indicator - lines 0-8 and 8-8, which reliably report a price reversal. You can enter or exit a transaction.
Level 4-8 indicates a corrective movement, but the price after correction necessarily returns to its original level.
A trader should be prudent at a level of 7-8. This is a weak line; entering a trade at this level often causes losses.
Candlestick analysis
The study of Japanese candles begins with the color of the candle, shadow and body length.
Color: white means growth, black indicates a fall in prices.
Body: the ratio of body length to candle shadow indicates the subsequent direction of movement. A long body and a short shadow indicate a continuation of the trend. A short body and a long shadow warn of movement in the opposite direction.
It is difficult to describe candle combinations in detail in a short article. Mighty, hundreds of pages of candlestick reference books have been published. A leisurely study of the contents will bear fruit.
Divergence
Each trend indicator is used for specific trading conditions. A universal indicator of a trend change has not been invented. But for FOREX, divergence will be informative - a discrepancy between the price and the indicator line. This is the moment when the price chart draws a peak above the previous one, and the indicators depict the peak below the previous one: growth has weakened, and a trend change is approaching.
The theory, confirmed by practice, indicates the presence of three types of divergence:
- classic reports a U-turn;
- hidden informs about the continuation of the trend;
- extended indicates the continuation of the direction.
Classical divergence is mentioned in the previous paragraph. Both bear and bull cases are being worked out according to one scenario.
Hidden divergence is different in that the price chart forms a peak below the previous one, and the indicator, on the contrary, tends to go up.
Extended divergence differs from ordinary divergence in two, and sometimes three peaks. Only keen observation and experience will help to discern this type of discrepancy.
How to determine the trend in binary options?
Binary options - a relatively new tool, and therefore incomprehensible to newcomers to trading. Before entering the options market, you should learn the rules:
- No need to go for options with the last money.
- Binary options are not a toy.
- Both FOREX and binary options work on the same strategies.
- If you have experience working with indicators on FOREX, then skills will come in handy on binary options.
Final words about working on the exchange
Success on the exchange is determined by personal qualities, endurance and patience. The basics of currency trading is more practical to study on a demo account - there will be less losses and tears. It is wiser to start trading in small amounts of currency. Better small profit than loss. Constant study and broadening one's horizons will save the trader from hasty decisions. The author hopes that the article will help a newcomer to the FOREX market learn how to determine a trend.
