Trading forex with basic trend

Trading forex with the trend is a method of trading according to the trend of the price. That is, when the price increases, we will buy or if the price decreases, we will sell.

1. What is the trend, the formation of the price trend?

A price trend in general or market trend is the movement of prices, formed by the supply and demand of the trading market, among investors, funds, banks..

For each currency pair, for example XAUUSD, an uptrend is when investors want to buy gold and hoard it in anticipation of a higher price of gold against the USD. Conversely, when the investors predict the gold price to fall, they will sell a large, forming a downtrend.

Because supply and demand in the market is always fluctuating, the trend will also change according to the needs of investors. You can see on the screen at any time that the price is always fluctuating without staying still (unless the market is not trading, usually on a holiday).

Because the price always changes according to the market demand (or because the large fund wants to adjust), the trend always changes. It can be weakened, strengthened or reversed at any time. Especially when there is news from a major economic market related to the currency pair you trade. 

For example, the price of gold can fluctuate greatly when there is news from the US government which is related to the US economy, leading to the price of the USD to rise or fall against the price of gold, when you trade the XAUUSD pair.

There are 3 main types of trends: uptrend, downtrend, and sideways.

• An uptrend is when the price continuously makes new highs higher than the old ones and the new lows are higher than the old ones.

An uptrends of XAUUSD

• A downtrend is when the price continuously forms a bottom that is lower than the old one, and the new top is lower than the old one.

A downtrend of XAUUSD

• The case where the price moves sideways within a certain range is called a sideway.

Sideway

Should I trade against the trend?

The answer is NO. Trends are formed by a "war" between buyers and sellers. When the bulls get stronger and dominate, the price will go up and vice versa. In this case, we should not go against the crowd. Going against the trend is like going against the river. It will be very difficult, but conversely, if you go with the trend, there will be a chance to make more profits.

 Remember: "trend is my friend."

 So, how to identify the trend, we will go to the next part of this article.

2. How to identify the trend

Determining the right trend is extremely important for trend-following traders. Because if you identify the wrong trend, you are very likely to lose. We will learn how to identify an uptrend, and you can infer from a downtrend.

First, you need to understand the following concepts:

What is an uptrend?

An uptrend is a trend where the next high is higher than the previous one, and the lower is higher than the previous low (see the pic above).

What is a correction zone? 

A correction zone is an area where the upper border is the last previous high and the lower border is the last previous low?

Corrective waves and how to detect

What is a corrective wave? A correction or retracement wave is a price line that originates from a new high and forms towards the correction area.

How to identify the top of an uptrend

An uptrend is formed when the price breaks the previous high and closes above the old high. A new top is recognized when a corrective wave appears, and the price closes in the correction zone.

How to identify the bottom of an uptrend.

The bottom of an uptrend is made up of a corrective wave, when the price returns to the correction zone and closes into the correction zone. This bottom is only recognized when the price moves up and breaks through the price of the previous most recent high. If not, the trend may reverse.

Next article: How to trade with the trend