How to Determine Trends when Trading the Forex Markets

One of the most common pieces of advice that you will receive as a forex trader is to always trade in the direction of the overall trend. However while that may sound ridiculously simple, it's not always that easy to do because the trend will often be unclear. So how do you successfully determine the trend?

Well there are lots of ways but the most obvious way is to look at the price chart and see which way the price is sloping. If the price is higher at the right hand side of the chart than the left hand side then it's obviously in an upward trend, and if the opposite is true then the price is clearly trending downwards.

However it's often not as simple as that which is why you need to use a few technical indicators to help you determine the trend. One of the most popular is the moving average indicator. I prefer to use exponential moving averages (EMAs) and will often plot the 200, 50 and 20 period EMAs in order to highlight the trend. If they have all turned upwards then this indicates a new upward trend and vice versa if they are all sloping downwards.

Another indicator you can use is the supertrend indicator. This isn't one of the mainstream indicators because it is not included with most charting software, but it is very useful for determining the trend because it's a line that's either green or red at any one time. A green line indicates a bullish trend and a red line indicates a bearish trend.

I use both the supertrend indicator and the exponential moving averages mentioned above because they really do give you a good indication of where the markets are heading. The key is to not only apply them to the time frame that you are trading, but also to the lengthier time frames as well.

For example if you trade off the 1 hour chart, then it's often a good idea to determine the trend on the 4 hour chart as well to keep you out of trouble. This is because if the price is trending upwards on the 4 hour chart, any downward trend that may be present on the 1 hour chart may only be a temporary one, and therefore not one that you would want to trade with any confidence.

So to sum up, there are lots of ways you can determine the overall trend but my preferred methods are to use a combination of EMAs along with the supertrend indicator. If you apply these indicators to various time frames you should always be on the right side of the trend, and you will therefore increase your chances of making consistent profits from forex trading.

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