Forex Market: Identifying Trending Currencies

In the forex market, currency exchange rates fluctuate constantly. Market participants try to make profits while these changes occur. One of the best ways for foreign currency exchange traders to maximize their profits is to participate in trends and identify trending currencies before making an investment. For this, it is important to recognize trends and take a decision on the basis of the type of ongoing trend.

Forex Market: Type of Trends

Forex market trends go through both high and low trends and thus follow geometric patterns. In an upward trend, the series of trends is represented by higher highs and lows. In a downward trend, one can normally notice a series of lower highs and lower lows in the forex market.

In the forex market, trends can fall into the following three categories:

Ascending Trend: This is represented by any period during which exchange rates rise to reach a higher value than the previous rate. It is an increasing gain in rates, as compared to the rate before it. In an ascending trend, traders will sell to make quick profits, if they open long positions and are satisfied by the growth in the exchange rate. Ascending trend channels are quite useful in predicting general changes in trend. Traders can expect the upward trend in price to carry on until prices stay within the ascending trend channel.

Descending Trend: This is denoted by any period in which the current exchange rate falls. In simple terms, the value of rates becomes lower. While drawing trend lines for ascending rates, you connect the highest peaks of local maximums. Similarly, to draw trend lines for descending rates, you need to connect highest peaks of local minimums.

Reversal Trend: The changing of a trend is often referred to as a reversal trend. When the direction of the rate changes after a halt, also called penetration point, a change takes place. A reversal trend, however, is not the same as deviation. This is because a deviation is not the complete transformation of the trend, it is only a simple movement in the trend.

When it comes to the forex market, a good time to sell is when it is confirmed that there is a change in the ascending trend. On the contrary, a good time to buy is when there is confirmation of a change in a descending trend. Traders should monitor the trend lines to stay updated about a change of either trend. One can note the confirmation when a trend that was highly supported goes through a lot of resistance or vice versa.