What is trend analysis?

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Trend analysis is one of the fundamental elements of successful work on the international Forex currency market. It is based on a detailed study of price charts followed by the application of technical analysis. In other words, trend analysis is understanding what should happen in the future by looking at what is happening and what happened in the past. Methods of this type of analysis are also successfully used to assess the demand for goods and services, and to forecast sales, and to assess the need for certain goods or services.

Trend is the basis of such a tool as trend analysis. This term refers to the course of the market price on its chart in any direction. It can be classified into three types:

- The so-called bullish or uptrend. This trend indicates a clear price increase.

- The so-called "bearish" trend, or downtrend. Accordingly, this indicates that the price is falling.

- "Flat", or sideways trend. The price moves in a fairly narrow range. It usually precedes a sharp rise or fall in the price.

Also, the trend can be classified by time intervals:short-term, medium-term and, accordingly, long-term. The latter may take several months. Medium-term - a couple of weeks. Short-term - a maximum of a few days or even hours. It is advisable to start trend analysis by gradually reducing the timeframe. That is, you need to start analyzing the price movement from the largest time period, smoothly moving to a shorter one.

In an event such as trend analysis, there are several main tasks.

First, you should decide on the direction of the trend in the future. Secondly, at least roughly estimate how strong this or that trend in price development is. To solve the first problem, trend indicators, channels and lines are used. To solve the second problem, traders usually use chart patterns and some indicators.

Any trend in itself causes at least a minimum trading volume, and understanding this can greatly simplify the forecast. Forex is an extremely dynamic market. If the trend strengthens, the trading volumes will also increase. When prices roll back (i.e., a decrease in trend strength), trading decreases. If the trend does not match the expected trading volume, then this is a sure sign of weakness in the price movement.

To successfully conduct an event such as trend analysis in the Forex market, you must follow some fairly simple rules:

- You need to open deals only in the direction of the trend. This is one of the most important rules. There are ways to catch price reversals and work with them, but in this case, the risks will be significant.increase. The price will follow the trend rather than change it - another postulate of the Forex market.

- The trend can be considered active until the moment when there are clear signs of a price reversal. This may be, for example, a breakdown of the resistance or support line, the release of important news.

- You should not try to intuitively predict a trend reversal and open trades against the current trend.