The ability to recognize a trend is one of
the most important skills any trader can harness. The FX market,
like other financial markets, will trend upwards, downwards, or
sideways over varied timeframes. If a trader can learn to discern
which direction the market is trending, they position themselves to
succeed greatly. Today, as a result of increasingly sophisticated
charting packages and trading platforms, even novice traders are
easily able to utilize sophisticated indicators to help recognize
Traders Workshop : Harnessing e-tools in Trend analysis, by Patrick Kinsel
Patrick KinselHead Analyst, FX Trading
A trend is simply the overall direction of the market. At some
points, trends may be easily recognizable. At other times, trends
may be overshadowed by wild market fluctuations or hidden within a
ranging currency pair. Failing to recognize a trending market can
mean death to even the most skillful trader. For example, if a
trader shorts a currency pair at what they perceive to be a strong
resistance point, but fails to recognize the markets overall upward
trend, they may be on the wrong side of the position. Although the
resistance seemed strong in this case, the upward trend is often
more powerful and more likely to lead the markets movement.
As trading platforms become more sophisticated, the average trader
is able to harness increasingly complicated indicators to recognize
trends. Tools that were once reserved for only the most
sophisticated traders are now available to anyone with a basic
charting package and an internet connection.
An ADX line illustrates the directional change and/or movement on a
scale of 0-100. When the ADX value is rising, the market is
trending. When the ADX line falls, a trend is not presently
occurring. Analyzing the ADX is only the first step; it does not
tell you what direction the market is trending.
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