To whom is the name Dow Jones a term? Exactly, that cunning gentleman has developed the approaches that we use today in forex trading or in general stock trading for technical analysis. He divided the price movements into three parts: upward trend, downward trend and sideways movement. It also distinguishes between the primary trend and the secondary trend. Although the primary trend tends to be upward, there may be short-term slumps (corrections/consolidations) in a smaller Timeframe. This is called “counter-movement” or “secondary trend”. If you want to rely on your charts when trading, you have to draw trend lines. If a low point is present during a course movement above the previous intermediate lows, this is an upward trend. These extreme values can in turn be connected to a straight line-so you get the so-called trendline. If, in an upward trend, you can create a second line in parallel to the respective maximum rates, you get a trend channel. A downward trend is seen in a series of falling high points. A trend line is considered to be all the more reliable, the longer it exists and the more often it has been tested. Traders can use an upward trend to return to the trend line for entry and open a long-order (Buy). The increased demand allows the prices to rise again, so that the trend line is confirmed again and thus also represents a support. In a downward trend, the trend line represents a resistance and provides an entry point for speculation on falling courses. The trend lines are often plotted in charts. If the current price does not break the trend line at any point, it can be concluded that the trend continues. However, if the course falls above or below the trend line, it breaks the trend of the trader puts the position smooth (dissolving the position). During a sideways movement one should preferably suspend the trade, as one cannot foresee well how the further price development will look. Scalpers can use the upper and lower resistance in a sideways trend to place a long-order (Buy) and a short-order (sell) at the bottom.
Traders also like to work with “moving averages” instead of trend lines. Many also call them “dynamic trendlines” because they are not rigid, but adapt flexibly to the course. In the case of moving averages, the chart software calculates the average prices for the past X periods and Gereriert a line. Moving averages are available as EMA (exponential moving average), SMA (simple moving average) and SMA (smoothed moving average).
Using moving Averages (MAS), traders can not only determine the trend direction, but also impose rules for entry and exit, such as crossing the course through a specific moving average.
How do you recognize an upward trend?
The upward trend is usually seen in the fact that the course repeatedly marks new highs and the lows that follow it are higher than the previous lows. The course runs from the bottom left to the top right. Beginners should always deal with the trend.
An upward trend is characterized by higher highs and higher lows. The entry into the trade takes place when touching the trend line in trend direction.
And a downward trend?
The downward trend is exactly the opposite: here the lows are usually lower and the intermediate highs are getting lower. The downward trend is from top left to bottom right.
A downward trend is characterised by deeper highs and deeper lows. The entry into the trade takes place at the trend line, i.e. at the highs or at the breakthrough of the last low (after market technology).