7 Easy Methods to Identify a Market Trend: The world is growing day-by-day. It is evolving like never before. We almost daily hear some news about the latest advancements in one and the other industries. It makes that industry trend for a while. Now, a person with some savings has two options. One, keep his savings with himself and see the world outperforming him. Second, take the full advantage of that trend and make your savings increase.
What…? You don’t have much savings?
What if I tell you that you can start with whatever you have!
Yes, by investing in the currency trading market, you can take the full benefit of any trending industry or product.
The easiest way to multiply your wealth is by investing in the trading market. And, if by any chance, you identify a potential trend, then you will soon see your savings grow exponentially.
But! How do you identify a trend?
Simple, there are methods to do so. And, below are seven most natural methods for you to determine a trend.
7 Ways to Determine an Upward Trend
1. Understanding Lines and Graphs
The foremost, and probably the most natural way, to identify a potential market trend is by observing lines, charts, and graphs. One needs to have basic knowledge of them at least. These are natural indicators of how the prices are moving and traders can make speculations over these charts too.
One frequent mistake forex traders make, is using only a specific kind of chart, like candlestick. Every table has its purpose and should be used accordingly to take full benefit. For instance, candlestick charts are suitable for analyzing the short term performance of a stock. However, when it comes to identifying a trend, nothing fits better than a line or mountain graph.
2. Understanding Highs and Lows
If you have been currency trading for some time, then you must have heard the words- Higher high, lower low, lower high and higher low. Higher high and higher low is the term used during an uptrend, and lower low and lower high are the terms used for the downtrend.
A higher-high is the highest point during an uptrend, while a higher low is the lowest point during the same uptrend. Higher high happens because the buyers are in surplus and betting aggressively to purchase the commodity. Higher low happens because when the instrument starts down-trending a bit, buyers start buying much more aggressively than before. Thus, it helps in continuing the uptrend.
A similar situation happens for lower lows and lower highs too. These are great tools to identify the market trend.
3. Understand Competitors
A successful forex trader always keeps an eye on the competitors of his potential investment too. The competitor’s observation would get you a clearer picture of emerging trends and effect on your investment company.
This trend identifying method is suitable for the long term and is very good at understanding the market positioning of a firm. For instance, a company starts using a new technology which eventually raises its profits. You can invest in a company who has not implemented this new technology yet. You can also invest in a company which is most likely to get benefited from this technological advancement.
4. Understand Influencers (Operators)
Currency trading is a very wise game. Everybody thinks they are playing good, but the truth is some big fat investors and organizations control it. These are generally called operators or industry influencers. They, purposely, sell and buy assets in bulk to move the price in their favour.
Keeping track of these influencers and their moves can be the best strategy to find a potential trend. Also, an experienced forex trader never falls into the traps of these operators.
For instance, if an investor wants to increase the price of his assets, then he would invest a large pool of funds in that asset. Eventually, the price would increase, and more and more people would also start buying it. His existing asset’s price in that organization would increase.
5. Understand ADX
The average directional Index or ADX is a prevalent trend indicating tool. It helps the forex traders identify the most strongly performing currency trading assets. It rates every asset on the scale of 1 – 100, wherein the details are as follows.
|Average Directional Index Rating||Trend Indicator Analysis|
|0-25||Weak or Downward Trend|
|26-50||Moderate Upward Trend|
|76-100||Very Strong Trend|
It is a single line on the price chart and takes the average of a particular period. However, one must not rely solely on this indicator as till the time this indicator finds a trend; the delivery might be exhausted. This indicator is also not useful for day forex traders as a day trend is too volatile.
But apart from that, it surely helps you find profit-friendly stocks.
6. Understanding Trend Rider
A trend rider is another tool for understanding trend reversal and entry & exit points. Whenever the trend would change, the background colour of the chart would change. Green colour denotes an upward trend while red is for the downtrend. This tool can work wonders for beginners as it is the simplest of all. This fantastic trend analyzer, developed by Tradeciety, works on the price momentum principle and tracks price action every second.
It is by far the most reliable trend tool for intraday and beginner forex traders. Note it down! Below is a picture of a trend rider to help you understand better.
7. Other Ways
Apart from the above mentioned technical indicators, there are several other basic ways too. Be aware of the environment, political and monetary; follow different magazines and articles for updates; surround yourself with good currency trading people; and most importantly, learn to adapt changes, don’t be rigid.
So, these were the methods to determine a potential market trend. These methods are very fundamental and can be used by beginners easily. But before wrapping things up, below are some short pointers which might be useful for you. These are tips which every beginner forex trader reads but ignores. However, we don’t expect the same from you.
Useful Tips for New forex traders
- Frequently start using stop losses. It is like life insurance. One needs it if he wants to live peacefully.
- Always be practical about your gains. Do not expect your investments to turn triple in 2-3 days. Keep a fixed profit percentage in your mind and stick to it.
- Don’t be demotivated at all. Nobody gets 100% correct predictions about the trends.
Last, but not least,
- I never stop learning. A successful forex trader is always looking to make him equipped with new ideas, strategies, and perspectives. Remember, it all helps in your currency trading game.
The Bottom Line of Market Trend
There’s a famous saying- “Trend is your true friend”, in the currency trading world. Knowing a trend in the market can protect you from several losses. It would help you avoid buy/sell traps. Thus, it is imperative to use some methods to identify a trend. It would help you flow with it, rather than go against it.
But, remember identifying a trend is a secondary thing. First, you need to pick an asset upon which you will trade. Obviously, it is your personal choice and depends upon several other factors, which change with time. However, there are some things one needs to keep in mind when choosing a stock.
How to Select a Stock?
A company’s stock is a replica of its reputation and position in the market. If any forex trader wants to earn profits from a trade, he must ensure that his asset is volatile. The reason is if the stock stayed stable, the trader would not be able to take the benefit of the trend.
Second, there must be a good volume available to trade. For a better understanding of volatility and volume, for any stock, just take the difference between the lowest and highest value for any day. More the difference, more the volatility!
Now you look equipped to earn profits without falling for any traps. You just need to open a currency trading account now to start earning. Don’t know? Here is the complete guide!
And, for your future trades,
All the Best!