Master Trader’s Top Method for Identifying Trends Quickly

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The trend, they say, is a trader’s friend. And it rightly is!

Every trader wants to identify trends in the market or for a particular instrument in order to position themselves for potentially profitable entry and exit points.

While identifying a trend and gauging its strength isn’t a straightforward task, there are quite a few ways in which you can quickly determine the direction of a trend in a simple manner.

And that’s what we will be talking about today.

But before that, let’s go over trend analysis and how traders can use it to earn potential profits.

What is a Trend?

A trend is a tendency for prices of any instrument to move in a particular direction over a period of time. These trends can be short term, long term, upward (uptrend), downward (downtrend), and even sideways.

Traders often seek to identify trends in the market to buy outperforming securities and sell underperforming ones. So, trend trading is based on the premise that instruments or securities that have gone up will continue to go up or vice versa.

The goal here is to work with the trend by finding buying opportunities in an uptrend and sell them in a downtrend or when they start to lose steam.

How to Spot a Trend Quickly

Let’s say you want to find the trend for the EURUSD currency pair. This can be done quickly with a few simple steps on your SmartTrader platform. Here’s how…

Open up a new daily EURUSD currency chart on the SmartTrader trading platform.

Now, to find the trend for this pair, all you have to do is add a ‘Simple Moving Average’ on the chart.

Just right click on the chart and choose the ‘Indicator’ option. Now, select the ‘General’ option and search for ‘Simple Moving Average’ and add it to your SmartTrader chart.

Here’s how it would look like:

The next thing is to change the simple moving average to a period of 200. What this means is our simple moving average will be using 200 historical candlesticks.

To do this, click on the settings button displayed right below the instrument name on your chart and change the period to 200 days.

What you now have is a 200-period simple moving average on the chart.

Here’s a look:

What the example above shows is a red line representing the 200-period simple moving average on the chart.

This simple moving average is nothing but the average price of the currency pair or any instrument over the specified period. The average is called ‘moving’ because it is plotted on the chart bar by bar, forming a line that moves along the chart as the average value changes.

So, simple moving averages calculate the average of a range of prices by the number of periods within that range. In simple terms, it is a technical indicator that can aid in determining if the price of an asset will continue in a direction or if it will reverse a bull or a bear trend.

Going back to our EURUSD chart, if the market is above the lowest moving average point, we can say the trend is bullish. And if the market is below the highest moving average point, we can assume the trend is bearish.

The yellow circles on the red line in the image below are the lowest and highest moving average points for our chart. And anything above or below these points can indicate whether we have an uptrend or downtrend.

Any level above the lowest moving average points on the chart represents a bullish trend, and any level below the highest moving points represents a bearish trend. And you can use this data to try to find your best entry and exit points.

Say if the current trend is downward or downtrend, you can SELL the EURUSD pair until the trend reverses and get some potentially profitable trades out of it.

Tian Kriek, Senior Currency Strategist at Market Traders Institute, has recorded a short video on this topic, which you can Watch Here.

So, there you are with a quick and simplistic way to find a high probability trend in the Forex market. It can also be a great starting point to analyze the market to get directional bias and you can use it on any currency pair or instrument over any time frame.

For more such Forex strategies and trades, you can check out Tian’s Analyst On Demand Trading Room.

And if you are new to the Forex market, download this FREE ebook to know how you can avoid some of the critical trading mistakes that almost every trader has made.

Click here to know more >>

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for everyone. Past performance is not indicative of future results. The high degree of leverage can work against you as well as for you. Before getting involved in foreign exchange you should carefully consider your personal venture objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial deposit and therefore you should not place funds that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts. The information contained in this web page does not constitute financial advice or a solicitation to buy or sell any Forex contract or securities of any type. MTI will not accept liability for any loss or damage, including without limitation any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

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