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How to identify the prevailing trend in the market?

The forex market is always moving. The market will either go or down and in some cases, it will exhibit sideways movement. In order to make a profit, you must identify the prevailing trend in the market. The experts believe that identifying the prevailing trend in the market is extremely important since the whole performance of the trade depends upon it’s as a professional forex trader it's extremely important to identify the prevailing trend in the market.

What is an uptrend?

When the market moves in the upward direction making new higher highs associated with lower lows it is generally termed as uptrend. Most of the time the market strongly rallies in the north in case of the uptrend. Professional traders always try to execute buy orders in the market when the prevailing trend is an uptrend in the market. In an uptrend, the buyer is the winners and they take the price of a certain asset in the north.

Formation of uptrend and downtrend in the market

Figure: Uptrend and down trend

What is down trend?

When the market moves downward making a series of lower lows associated with higher lows in the market we call it as a down trend. The market strongly moves in the southward direction case of the downtrend. Professional traders look for selling opportunity when the market exhibit downtrend scenario. In a downtrend, the sellers are in control of the market and they drive the price down by overruling the power of bulls.

Sideways market: When the market movement is neither bullish nor bullish it’s said to be a sideway market. Most of the time the market movement is fixed in a certain range of sideways movement. In another word we can say that price is confined within a channel in the sideway market. Professional traders always trade in favor of the long-term previous trend of the market since most the time breakout occurs in the factor of the past trend.

The best way to identify the prevailing trend in the market is by using the higher time frame. Professional trader uses the weekly and daily chart in the mt4 trading platform to identify the prevailing trend in the market. First of all the look for higher for and uptrend and lower lows for the down trend. Just by seeing the chart you will get a clear overview who are in the control of the market. If the buyers are in the overall control of the market then we will have a more bullish candle and if the sellers are in control then we will more bearish candle in the market.

There are many traders who use a different kind of indicators to identify the prevailing trend in the market. But relying solely on the indicators is not at all wise. As a professional trader, you must focus on the price action scenario of the market. Indicators can be you helping tools but it should not be your prime trading assets. The most popular form indicators are the MACD and moving average for trend identification. Professional traders use these two indicators and price formation to identify the prevailing trend in the market.

One of the most popular techniques for the trend identification is the use of trend line. Starting from the novice trader ending with the professional trader all uses the trend line to identify the prevailing trend in the market. In order to identify the bullish trend in the market, the traders connect three lower highs in the market and see if the lower high is associated with higher highs. If the parameter is full filled then it’s a classic example of the uptrend in the market.

A downtrend can be identified by using the bearish trend line in the market. Professional traders use three lowers highs in the market to connect the bearish trend line in the chart. Once the trend line is connected they see that if the market is making lower lows associated with lower highs. If the parameter is full filled then it’s a classic example of a bearish trend in the market. Many professional traders also use the moving average along with the trend line for trend confirmation.

If you can truly identify the prevailing trend in the market then trading the financial instrument will become extremely easier for you. Most of the time all the currency pairs exhibit trending movement in the market. That means if you know the prevailing trend most of the times your trade will go in favor of you. It’s true that identifying the trend at the early stage will be little bit difficult f since the daily trend might exhibit uptrend but the weekly trend may say different scenario. In that case, it is extremely difficult to accurate identify the prevailing trend in the market. In such circumstances, professional traders use the market sentiment to identify the prevailing trend in the market. Market sentiment is a great tool to identify the next movement of the currency pair.

Once you master the art of trend identification you will see the forex world with a whole different view. Trading will become extremely easier for you since you will be taking trade in favor of the long-term prevailing trend in the market. But the trend is not an absolute thing in the market that means it will change in the future. So as a professional trader you must use protective stop loss while you trade the different assets in the financial market in favor of the long-term prevailing trend. And always execute your trade with proper risk management factors.

 

 

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