In trading, one of the best ways to increase your profit potential is to trade in the emerging trend. To be able to follow the trends that emerge, you must be able to identify and recognize the emerging trends.
Check out these easy steps to identify emerging trends that you can apply as part of your trading strategy.
Determine Price Movements
Before recognizing a trend that is happening, you need to identify price movements that have occurred during the last several periods. It’s easy enough, you can use the moving average indicator on the chart of the currency pair you choose.
A moving average (MA) is a technical indicator that shows the average price movement of currencies in each session. If the MA indicator seems to be increasing consistently, most likely, the ongoing trend is an uptrend and vice versa. According to Investopedia, the most common applications of moving averages are to identify the trend direction and to determine support and resistance levels.
Moving Average Crossover
One indicator of an ongoing trend is the emergence of a crossover or cross of price movements. It is detected by the MA indicator. A moving average crossover occurs when the short-term MA movement of a currency pair moves higher or lower than the long-term MA in the previous period.
For example, the MA of the EUR / USD pair for 5 days is higher than the MA for the previous 20 days. Then, there has been a crossover on the currency pair and it is likely that the uptrend is ongoing.
Price Action
Another way to identify trends is to observe price action or price movements that have occurred during the last several periods. You can pay attention to the order of the highest peak prices and the lowest prices formed in a row. For example, an uptrend will usually form a series of higher highs and higher lows in a row.
When the price peaks appear higher than the previous price peaks, it can form Higher highs. Whereas the higher low is formed when the lowest price of a session is higher than the lowest price of the previous session. Conversely, Lower high and lower low is the highest and lowest prices of a session lower than the previous session. This indicates a downtrend.
Combination Analysis
By combining the three types of analysis techniques above, you can easily find trends that are happening. For more accurate results, you can also combine them with fundamental analysis techniques to find out the economic conditions that cause the trends to take place.
Read more: Tips to Divide Trading Time for Beginners
