Trend
Trend is the overall
direction prices are moving either, UP, DOWN, OR SIDEWAYS. |
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Up
Trend
As the trend moves upward, the U.S. Dollar is appreciating
in value.
Assume:
Buy U.S. Dollar, sell Japanese Yen.
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Down
Trend
As the trend moves downward, the U.S. Dollar is depreciating
in value.
Assume:
Buy U.S. Dollar, sell Japanese Yen.
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Sideways
Trend
Prices are moving within a narrow range.
(The currencies are neither appreciating or depreciating.)
Assume:
Buy U.S. Dollar, sell Japanese Yen.
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In
the Foreign Exchange (FX) Market, it is possible to profit from Up and
Down movements, because of the buying of one currency and selling
against the other currency. For example, buy US Dollar and Sell
Japanese Yen--e.g. The Up Trend chart.
Note: Charts
shown herein are examples only and are not necessarily representative
of actual market conditions at any particular time.
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Trend
Classifications
Within any trend, there are other shorter trends that make up the whole
trend. To distinguish these shorter trends, traders classify the
shorter trends relative to their position within the whole trend.
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Drawing Trend lines
The basic trend line is one of the simplest technical tools employed by
the trader, and is also one of the most valuable in any type of
technical trading.
For an up trend line to be drawn, there must be at least two low points
in the graph where the 2nd low point is higher than the first.
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Drawing Bullish Trend lines
After prices hit the trend line for the 3rd time, the trader should be
confident that the trend is established.
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Price Acceleration
As prices accelerate upward, a 2nd or 3rd trend line may be drawn to
follow the price trend.
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Trend
Analysis and Timing
Markets don't move straight up and down. The direction of any market at
any time is either Bullish (Up) Bearish (Down) or Neutral (Sideways).
Within those trends, markets have countertrend (backing &
filling) movements. In a general sense, "Markets move in waves," and in
order to make money, a trader must catch the wave at the right time.
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Drawing Trend lines will help to determine when a trend is changing.
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Trend lines show support boundaries under prices. These boundaries may
be used as buying areas.
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Temporary trend line penetrations are not as significant as a close
beyond the trend line. Prices retrace a portion of the current trend
before resuming in the original direction. These counter trend moves
tend to retrace to certain predictable percentages. The best known
application of this movement is 50% retracement.
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When prices trend between two parallel trend lines, they form a
Channel.
When prices hit the bottom trend line, this may be used as a buying
area, and when prices hit the upper trend line, this may be used as a
selling area.
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