Forex Trends – Are They Your Friend?

#OPINIONLEADER#

“The trend is your friend” is one of the first principles taught in Technical Analysis because trends are often the most lucrative and stress-free market condition to make money. The logic is almost self-evident: if the market is trending in one direction, isn’t it best to trade in the same direction?

What is a Forex Trend?

A trend is when the market moves in a sustained direction:

• An uptrend is when the market makes a series of higher lows.
• A downtrend is a series of lower highs. 

How Do You Know a Trend Has Ended?

There are many different definitions of a trend break, but here is mine:

• An uptrend is over when the price breaks the most recent significant low.
• A downtrend is over the price breaks the most recent significant high.

When the most recent high or low breaks in a trend, it does not mean that the trend is finished —it may continue. But that initial segment of the trend has stopped, and you should examine the market in a fresh context when that happens.

Impulsive moves – moves with force

1. Candles are mostly (75-80%) the same colour, e.g., bullish, or green candles in a bullish impulsive move.
2. 
   
3. Candles in an impulsive move generally have shorter wicks.
4. 
   
5. The longest candles in a chart are mostly in impulsive moves. Longer candles cover more price in less time. That is why you get your profits quicker in impulsive moves.

Corrective moves – reverse the rules for impulsive moves

1. There is a greater mix of candle colours, i.e., bullish (green) or bearish (red) candles.
2. 
   
3. Candles are generally shorter, with closes near the middle or in the opposite direction of the impulsive moves.
4. 
   
5. Candles in a corrective move have longer wicks compared to the bodies.

Corrective moves do not necessarily have to go in the opposite direction of impulsive moves: they can also be sideways (like small ranges within a trend).

Impulsive moves often have fewer candles but cover a lot more distance. In contrast, corrective moves will not cover much price action but will contain more candles.

The above definitions are not rigid or fixed. For example, occasionally, you will see corrective moves with long candles. But the guidelines offer a framework to understand where you are in a trend.