The Trend Is Your Friend

It is widely known in the currency trading world that the trend is your buddy and any forex trading strategy based around following a trend is likely to be both straightforward and effective.

It is very easy to make trend lines on any foreign exchange chart, but most people prefer to use candlestick charts for this because the candlesticks are such a clear visual signal. The first step in using trend lines for a foreign exchange trading technique is to ascertain whether the market is rising, falling or is stable inside certain parameters.

1. If the price is rising

If the price is going up, first draw a straight line through the highest highs on the chart. This line will be sloping upward. Then draw another line thru the lowest lows on the chart. This implies that you can say that while the trend continues, the price will remain in the area between these two lines. Therefore , any time that the price hits the top line you could sell, on the assumption that it will fall back. alternatively, any time the price hits the base line you could buy, on the assumption that it will shortly rise again. In this example you follow the trend which is commonly a better methodology. However, you must remember that there will at some specific point be a real reversal and you could be caught out by this.

2. If the price is falling

If the price is going down, you can follow an analogous methodology to the previous system. The lines you draw will be going downward but you would still buy when the price hits the lower line and sell when it hits the upper line.