Great breakthroughs have surfaced with electronic trading and certain technical indicators are widely used. Nevertheless an affluent trader should be very skilled with trendline analysis in order to correctly predict Forex price movements.
“Trend is my friend” is commonly said among traders. In this chapter you will learn how to correctly apply trendline analysis, one of the most important tools in your trading analysis.
Market moves following some patterns. Movement of the market is either up (upward market), down (downward market) or sideways (flat or non trending market). Always avoid flat markets because market is fighting to make a decision and trading signals are cancelled because of the market sentiment.
Watch bellow a real market example of flat type of movements. Remember: the longer the flat market the greater the outbreak will be because when market decides the next direction then a new trend evolves and many traders follow this trend.
Figure1. This figure shows a flat market.
Figure2. See what happened after the flat market finished. A strong uptrend evolved.
Figure3. This figure displays a downtrend market environment.
Always remember: the longer the time period the most accurate your analysis will be. Always look the longer time charts and transfer your analysis to shorter time period. This last tip is something that is only referred in this book and can only be acquired through experience in trading.
For example in a daily chart market may look flat and non decisive and in 1 hour chart you may recognize a trading signal. In this occasion you should be very skeptical. Or worst, daily charts shows downward trend and 1 hour chart shows a trading signal to get long. This way you may be caught up in the wrong direction. Continue reading to learn exactly how to avoid these traps.
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Risk Disclosure: Trading forex on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.