How to Identify the Direction of the Market Trend

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Let’s answer this difficult assignment in two different ways, although as will be seen both are interlinked.  Firstly I want to discuss how general business trends can be identified and clarified and then to go on and examine how we can have an approach as a Forex trader which successfully interprets the trends.

The comforting thing to know is that the business of identifying trends is much more sophisticated than just sticking your finger up to see which way the wind is blowing!    The data that compares industrial performance, results, and consumer habits is readily available both for specific industries and across the board.

Even if you don’t have time to read through all the specialist publications that are available, you will find enough material by searching on social media where you can “tune in” to the views of major influencers. So many tools are at your disposal in terms of digital analytics and they can provide you with very sophisticated information. You can search on Google to see which are the niche trends and the most popular keywords.

Now all this is very general for the Forex trader but there are relevant lessons here nonetheless.  If certain trades are with the currency of countries heavily dependent on the performance of one industrial sector, that is a certain manipulator of their currency.

Now everyone agrees that a trader in Forex should not just go boldly and blunder but should have a plan and a strategy. However any such strategy needs to be grounded in reality because there is simply no such strategy that never loses. What a good strategy can do is to work the probabilities in any situation so that they end up making more gains than losses.

Trend trading is a popular approach and the kind of general informational backup that we alluded to earlier in this article is certainly relevant here. Now trends don’t come out of thin air, they develop for a reason. This reason might be a shift in the fundamental economic situation of a particular country.  The reaction of the pound to the Brexit result, a trend which has been substantially maintained for over 18 months, is a good recent example of this. Trends indicate a bias that could have been expected, given the circumstances.  There is of course no guarantee that any such trend might be reversed but the likelihood is that unless the underlying circumstances change the trend will remain.

Most of the indicators (a subject dealt with in another article on this site) will help the trader to develop a trending strategy.  Many traders will seek to utilize multiple time frame analysis so that they can get the right perspective of a trending market.

Of course all good things (and even bad things) do come to an end and no trend lasts forever. Thus traders will need to take steps to mitigate any loss so that they are not too badly hit by any reversal.

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