Knowing The Primary Trend
Trading would be almost impossible without charts and technical analysis. Trading is all about anticipating and predicating rather than forecasting. Technical analysis is the best tool a trader can have. A picture is worth more than a thousand words.
The most important thing that you should in a market is its primary trend. Primary trend is the direction of the market that offers the least resistance forward making money. When you follow a primary trend in a bull market you look for strong stocks and in a bear market you look for stocks showing weaknesses. Knowing the primary trend and trading in its direction increases your chances of making money. So how do you find the primary trend and what tools you need to determine the primary trend? You use the following tools to determine the primary trend:
Trendlines: You don’t have to worry much about how to correctly draw the trendline as most of the trading platforms have the function to help you draw the trendline. You can let the software draw the trendline for you or you can do it yourself. It is up to you. To correctly draw a rising trendline on the chart, start with the lowest low on the chart and connect it to the lowest low preceding the highest high in the chart without bothering about the prices between the two points. Knowing how to draw and use trendlines gives you an excellent start on any trade. Similarly to draw the down trendline, draw a line connecting the highest high on the chart to the highest high preceding the lowest low of the chart without passing through the prices between the two prices. Now why trendlines are important? Trendline show you the direction in which the markets are moving. If the trendline slopes up, it means that the market is in an uptrend. Prices are gradually going up. Now there might be minor trends in the primary trend but these minor trends are just like the ebb and flow of the waves in an ocean. Two more concepts that you need to learn is the key support and key resistance. Key support is the area above which the prices have held for sometimes. Key resistance is the area above which the prices have not been able to rise for sometimes. A market breaking above the key resistance or below the key support is a signals a new trend.
Moving Averages: Moving averages are sues to smooth out the market’s trend over a given period of time and serve as an important support and resistance levels. Support level is the price where the prices stop falling and the buyers step in overcoming the selling pressure. A break in the support level is an indication that more weakness may be ahead.
A break above the resistance level is an indication that the market is going strong. Resistance level is the price where prices stop rising and the sellers overcome the buying pressure.
Oscillators: Oscillators are technical tools whose movements up or below a certain level give you an important trading signal. What is more important to know is the fact that oscillators produce useful mathematical data that can help you tell whether the market is overbought or oversold and whether the momentum of the primary trend in the market is still strong or there is a potential change in the primary trend ahead? Two important oscillators that you should be familiar with are RSI and MACD. Oscillators are graphic depictions of points derived from the mathematical formulas that are plotted below the price charts. Knowing these mathematical formulas is not important as a trader. MACD is a highly popular technical indicator and is widely used by the traders in divergence trading.
Bollinger Bands: Bollinger bands are calculated by plotting points one or more standard deviations above and below the 20-day moving average. However, you can calculate Bollinger Bands with any moving average. Bollinger bands are also known as volatility bands or envelopes. Bollinger bands give you visual evidence when the market has travelled too far in any one direction. After you identify the primary trend in the market, you should determine your trading timeframe. These timeframes are a sort of vague and can range from a few weeks to months. Short time frame for market timers is a few days to a few weeks. Long term time frame is something like six months.
Mr. Ahmad Hassam has done Masters from Harvard University. Try these cash printing Forex Signals from heaven. First trade on your Forex Demo Account!
Related posts:
- The Volatility Of Forex Market – Key Things To Understand
- Forex: Things To Know About Term Trend And A Long-Term Trend
- The Forex Markets Change Focus To US Earnings Releases
- Forex Trading: How To Figure Out The Trend?
- How To Achieve Success In The Forex Trading Sphere?
Tags: Forex