Understanding Trends in Forex

FX Strategy Articles > FX Trading Tips

Yesterday, we talked about some of the biggest events of the coming week. We also mentioned how important it is to keep track of announcements as these could affect the market in the coming days, or even weeks.

Today, we talk about trends. As with trading stocks, currencies go through trends. In basic terms, a trend is the direction the foreign exchange market is taking. Successful traders learn to recognise these trends to enable them to make sound decisions, whether it is to buy, sell, or hold.

But what causes these trends? There are a number of things that affect the direction of the market. However, the more dominant ones include the movement of currency pairs in the US stock exchange on Friday, as well as the so-called opening of the gap on Monday midnight during the Asian trading session. By looking at the results of the two, we will be able to determine whether the market is taking an upward or downward trend.

The result of American trading on Friday is important because it dictates the trend of the following week. If, for example, a currency goes against the trend on Friday, you can then expect the market to focus on correction during the first wave of this trend. Or if the currency does not move on Friday, then you can expect it to move the following week, either on Monday or Tuesday. Then finally, if a trend jump occurs on Friday, then Monday or Tuesday will be focused on correction, or the creation of a new trend.

News releases, interest rate decisions, and the likes can create a significant impact on the market trend. Thus, the importance of keeping track of the developments in various markets, as this will enable you to predict possible movements of the currency in the coming week. Also, remember that it is better to view the market on a week-to-week rather than on a day-to-day basis, so you can make better decisions, and consequently earn more from trading currency.

By FX Strategy Team, Published on 11th of March 2013
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