Trading trends are simply the price direction of a market or asset over time. It is based on analyzing historical data and price movements to predict what might happen in the future. It is a strategy that employs technical indicators to identify a specific market movement or momentum and is based on the assumption that markets are predictable. Trading trends are significant because they ultimately influence how successful or effective a trader is when making market moves.
We can’t predict the future, but we can calculate the likelihood of a trade’s success by stacking various factors to tilt the odds in our favor. Here are some of the best trends to look for if you wish to trade forex in Vietnam.
Trend Spotting
To read trends in the forex market, trend lines are commonly drawn onto charts to help understand price action. The line must typically consist of at least three points to be considered a valid trend. Before we begin, we’d like to emphasize the significance of time frames in determining trends. When analyzing long-term investments, the long-term time frame typically outweighs the shorter time frames. However, the shorter time frame may be more helpful for intraday purposes. The main types of trends are:
Uptrend – An uptrend is a price movement that is characterized by higher highs and lower lows. It describes when the price is rising or increasing. As a result, the uptrend comprises higher swing lows and higher swing highs. The uptrend is considered intact as long as the price makes these higher swing lows and higher swing highs. When the price begins to make lower swing highs or lower swing lows, the uptrend has been called into question or has reversed into a downtrend.
Downtrend – Lower lows and lower highs have traditionally been used to identify a downtrend. The price falls because there are too many sellers and not enough buyers. The highs are also lower because sellers are eager to offload their positions, and there aren’t enough buyers to fill the void. Traders use trend lines to identify downtrends and potential trend reversals. The trend line is drawn along the falling swing highs to indicate the location of future swing highs. A downtrend occurs when price action moves lower over time and is most easily identified by lower lows and lower highs.
Sideways trend – A sideways trend is a horizontal price movement that occurs when supply and demand forces are nearly equal. This usually happens during consolidation before the price resumes or reverses into a new trend. A “horizontal trend” is another term for a sideways price trend. Sideway trends are typically caused by prices moving between solid support and resistance levels. It is not unusual for horizontal trends to dominate the price action of a specific asset for an extended period before resuming a new trend higher or lower. Consolidation periods are frequently required during long-term trends because such significant price moves are nearly impossible to sustain over time.
A trend has two distinct components. The first component is the “impulsive” move in the direction of the trend, and the second is the “corrective” move, which is a pullback or retracement before the trend resumes. Elliott Wave theory includes this classification. Corrective movements do not always have to be in the opposite direction of impulsive movements; they can also be sideways. Impulsive moves frequently have fewer candles but cover a much greater distance. Corrective moves, on the other hand, will not cover as much price action but will contain more candles. The definitions provided above are not rigid or fixed. Corrective moves with long candles, for example, will appear on occasion. However, the guidelines provide a framework to work within.
Every Vietnamese trader wishes to understand how to identify trends and assess their relative strength. It allows us to trade with momentum rather than against it, increasing the likelihood of a favorable outcome. Unfortunately, determining the strength of a trend is not as simple as some might hope. Hopefully, the above information will aid you in this quest for success.
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Source: Vietnam Insider