We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bullish
GBP/USD
Bullish
USD/JPY
Bullish
Gold
Mixed
Oil - US Crude
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Bitcoin
Bullish
More View more
Real Time News
  • The inside bar pattern occurs regularly within the financial markets. Incorporating the inside bar strategy within a trading system can enhance a trader’s market analysis technique. Find out how you can use it from @WVenketas here: https://t.co/E3EWOYTYNw https://t.co/ZCT4pwc6nv
  • Greed has proven to be a hindrance more than assistance for traders. How does greed impact your trading? Find out from @RichardSnowFX here: https://t.co/aT8TZjlFqP https://t.co/C4vrTm69sE
  • Central bank independence has several advantages and disadvantages. Find out what they are in-depth with @MartinSEssex here: https://t.co/wVFXbbTxf1 https://t.co/WkwZK6wtzy
  • The $GBPUSD may be carving out a 4-year bearish candlestick pattern as the $EURGBP downtrend prolongs. GBP/JPY may rise but be wary of #Brexit risks clouding technical analysis. Get your GBP market update from @ddubrovskyFX here: https://t.co/wzV4fygKWe https://t.co/hpDmrh0LLo
  • Get your technical setups for the British Pound ahead of the key #Brexit vote in Parliament this weekend here $GBPUSD $EURGBP $GBPJPY - https://www.dailyfx.com/forex/technical/article/fx_technical_weekly/2019/10/19/GBPUSD-EURGBP-GBPJPY-Technical-Analysis-Amid-Brexit-Deal-Vote.html?CHID=9&QPID=917702 https://t.co/TBdvAY6GN2
  • The Australian Dollar could reverse gains if #Brexit is forced to be delayed. Global growth slowdown woes and other fundamental risks may also undermine $AUDUSD upside progress. Get your $AUD market update from @ddubrovskyFX here: https://t.co/VAs2C3cpQj https://t.co/9mqJ0DSLZZ
  • Here is my trading video for the week ahead: '$EURUSD, #Pound, Volatility - The Biggest Risks and Opportunities Ahead' https://www.dailyfx.com/forex/video/daily_news_report/2019/10/19/EURUSD-Pound-Volatility---The-Biggest-Risks-and-Opportunities-Ahead-.html
  • $GBPUSD is on the verge of pushing above five-year resistance. A break above with follow-through may precede considerable upside movement. Get your GBP/USD market update from @ZabelinDimitri here: https://t.co/0qfh7TRWJn https://t.co/GImIwuGodX
  • The $AUD may resume its downtrend while the #ASX 200 stock index powers higher as dovish monetary policy drives interest rates lower. Get your market update from @IlyaSpivak here: https://t.co/UPlHZrt6c2 https://t.co/EIIf9xackw
  • (Fundamental Forecast) Australian Dollar Could Wilt if Brexit Delayed, Growth Risks Hang $AUDUSD #Brexit - https://www.dailyfx.com/forex/fundamental/forecast/weekly/aud/2019/10/19/Australian-Dollar-Could-Wilt-if-Brexit-Delayed-Growth-Risks-Hang.html?CHID=9&QPID=917702 https://t.co/2aOYhblN3g
Determining the Direction of the Trend

Determining the Direction of the Trend

2012-08-30 20:52:00
Richard Krivo, Trading Instructor
Share:

You may have heard the expression “the trend is your friend”. Well, that could not be more true when it comes to trading. Being able to identify the trend on a currency pair…the direction in which the pair has been moving for an extended period of time…will benefit a trader greatly. Trading in the direction of the trend on the Daily chart is like running with the wind at your back. Except that, when trading, the trader has the momentum of the market behind their trade.

The first step in determining the trend is to check the Daily charts of each currency pair, and look for the strongest trend in either direction.

Below are a few examples of a currency pair demonstrating a strong trend.

Determining_the_Direction_of_the_Trend_body_uptrend_8_30.png, Determining the Direction of the Trend

If a pair is in a strong uptrend, as is the case on the above chart of the AUDUSD, it can easily be identified on a Daily chart. There should be no question in a trader’s mind which way a pair is trending. If a trader is not sure of the direction, choose another currency pair as we are looking for the strongest available trend to trade.

We can see on the chart above, simply by looking at price action, that the pair is in an uptrend. In addition to visually seeing the trend of the currency rising to toward the top-right corner of the chart, we can also confirm the uptrend by noting that the pair has been building higher highs (in green) and higher lows (in red) as it moves up.

When trading an uptrend, an excellent strategy is to wait for a pullback to a support level and then take a long (buy) position in the direction of the Daily trend. On the chart above, once the uptrend has been established, a trader could take a long position near the points denoted in red on the chart. This technique is known as “buying on dips”. The stop-loss would be placed below the lowest point that the price had traded in each of those pullbacks.

The opposite would be true when trading a downtrend. Take a look at the USDCAD Daily chart below

Determining_the_Direction_of_the_Trend_body_downtrend_8_30.png, Determining the Direction of the Trend

The downtrend is identified when the pair has been building lower highs (green) and lower lows (red). In this case, the trader would sell into the downtrend by waiting for a pullback to a level of resistance (green) and then taking a short position in the direction of the Daily trend, with a stop above the highest point to which the pair traded in the pullback. This is called “selling on rallies”.

The key here is that by trading in the direction of the Daily trend, the trader will be entering trades that have a greater likelihood of success since the momentum of the entire market is behind them. While pips can be made trading against the trend, any pips earned in a countertrend trade will come with a much greater level of risk associated with them. As traders, we want to eliminate as much risk as possible from each trade.

You should now have an understanding of the way to determine the trend of a currency pair.

---Written by Richard Krivo

To contact Richard, please email instructor@dailyfx.com . You can follow Richard on Twitter@RKrivoFX.

To be added to Richard’s distribution list, please send an email with the subject line “Notification”, to instructor@dailyfx.com .

New to the FX market? Save hours in figuring out what FOREX trading is all about.

Take this free 20 minute “New to FX” course presented by DailyFX Education. In the course, you will learn about the basics of a FOREX transaction, what leverage is, and how to determine an appropriate amount of leverage for your trading.

Register HERE to start your FOREX trading now!

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.