In this video we are going to talk about what a “trend” is…
One of the best quotes for Forex trading or trading in general is: “Trend is your friend”. Basically it means that you should follow the trend whenever possible and don’t go against it, because a trend is like a moving train and you don’t want to be standing in front of it… A popular saying describing traders going against the trend is “…like Catching Falling Knives”, and as you can clearly picture it, unless you are a skilled juggler, you will be cut.
So what is a trend? A trend is very similar to a bull or a bear market, which is a tendency of the market to move in one direction, such as up or down. Technically we define a trend on a chart as follows.
An Up Trend equals to higher highs and higher lows, as shown in this chart where the market is moving upwards and making new highs… and when it retraces, the lows are usually higher and higher as well… or higher highs and higher lows.
A Down Trend is the exact opposite, which means that the market is making lower lows and lower highs; as you can see in this chart.
Once again, you can see that the market is dropping and making new lows, and during the retracements we are seeing it making lower and lower highs, or lower lows and lower highs.
At the risk of sounding too simplistic, the idea of trading the trend is to SELL in a down trend as long as the highs are lower, and to BUY in an uptrend as long as the lows are higher… Once the downtrend start to make higher highs or uptrend start to make lower lows, the trend could be ending and we should look for other confirmations to trade…
I know this may sound confusing to you if this is your first time, so watch it a few times and memorize it… You’ll thank me later.
If you like this tutorial, please watch the video and leave your comments below and don’t forget to check out our other videos on the Forex Terminologies series.