Trends

Technical analysis, or chart reading, is the next natural step available after you have conducted your fundamental analysis. Fundamental analysis helps you determine whether you should trade a particular currency pair. Technical analysis helps you determine when you should buy or sell that currency pair.

Many traders consider technical analysis to be somewhat of an art form that anyone can master with a little time and practice. To get started, you should focus on becoming comfortable with the following foundational concepts of technical analysis:

 Trends – Where prices may be going

 Support and Resistance – Where prices may stop and turn around

The key to making money in Forex is identifying trend and trading with it. Trends tell you where prices will most likely be going in the future. If the trend of a currency pair is pointing up, you need to buy the currency pair to make money. If the trend of a currency pair is pointing down, you need to sell the currency pair to make money. If the trend of a currency pair is pointing sideways, you either need to alternate between buying and selling or wait until the trend points up or down to make money. Whatever you do, never fight the trend. It will be an expensive battle if you do. 

Trends do not move straight up or straight down. They usually move in one direction for a while and then retrace part of the previous movement before turning back around and continuing on the previous direction. Every time a currency pair turns around and begins moving in the opposite direction, it forms a new high or a new low. New highs form when a currency pair moves higher and then turns around and moves lower. New lows form when a currency pair moves lower and then turns around and moves higher. Identifying these highs and lows allows you to identify whether a currency pair is in an uptrend, a down trend or a sideways trend.

 Up trends, currency pairs that are trending upward are shown as a series of higher highs and higher lows.

Down trends, currency pairs that are trending downward form a series of lower highs and lower lows.

Sideways trends, currency pairs that are trending sideways form a series of highs that are at approximately the same price level and a series of lows that are at approximately the same price level.

From these forms of charts you can then determine, Long-term trends, Short term trends and Intermediate trends. 

Long term trends are many driven by economics factors; the internal economics of the underlying currencies country mainly forward interest rates 

Short-term trends are considerably more volatile due to their short dated time frame. These are the main trends used by traders and are driven by day to day news and announcements.

Intermediate trends, are more responsive in the short term, yet they are not as dependant on interest rates and do not dominate intermediate trends like they do long-term trends. 

From the above you will quickly gather that when all three trends are moving in the same direction it is a very good indication to buy or sell the underlying currency pairs. 

The next two chart indicators are very important, Support and Resistance. 

Support is a price level at which a currency pair tends to stop moving down and then turns around and starts moving back up. Support is, simply put, a price at which point traders expect to see buying. Support can be a level that we have seen previous buying activity at (perhaps the price bounced off of it last month), psychological (a great example here is the USD/JPY pair, which had previous major psychological support at 100.00). 

Resistance is a price level at which a currency pair tends to stop moving up and then turns around and starts moving back down. Therefore as above resistance is the exact same as support except it is an area where we have seen traders selling the pair in the past.

 First is always to indentify the direction in which the pair is trending. As with any trading in the currency exchange market these signals need to be combined with over indicators as well to help confirm the trade and to make the odds of a successful trade more likely for you.

 Examples below are of horizontal support and resistance and also of vertical support and resistance.