If you are a beginner in Forex Trading then the chief skill that you need to develop is of identifying trends. It is quite simple to draw trend lines on a chart but the difficult part comes in verifying the trends that you generate and also there is some degree of difficulty in identifying emerging trends and in generating trading signals through these trends. The toughest part lies in identifying trends in multiple timeframes.
In order to understand the trends you need to know what are “Up Trends” & “Down Trends.” The up trends can easily be defined as trends having back to back, higher highs and higher lows. The down trends comprise of consecutive lower lows and lower highs.
The most favourite indicators of FX traders are of two categories:
1. The Directional Movement Indicator System (DMI) including the ADX indicator.
2. Moving Averages (MA’s) through the MACD Indicators.
The Moving Average comprise of three distinct type of moving averages: The first type comprise of “simple moving averages.” The second type comprise of “Exponential moving averages.” The third comprise of “Weighted moving averages.”
It is not necessary that you can only use the above mentioned categories of variables; there are many other indicators available for measuring trends.
In order to become a successful trader some hit and trial is required, before you can settle in nicely with techniques of trade that suit you. Remember that the moving averages are computed and must relate to the charts that you draw out of recent activities of chosen time frames.
There are two basic principles that you need to learn before you start experimenting with moving averages. The first principle is regarding, “Up Trends.” When faced with up trends you should know that the prices are above the moving averages. When faced with a “Down Trend,” remember that prices in this situation are below the moving averages.
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