Forex Trading: Patterns Versus Trends

Brokers like ThinkForex offer their clients a number of tools to help to refine their trading strategy, aimed to complement the many different methods available to them. A simple shop around should be enough to convince even the most inexperienced trader that there are a hundred different ways to approach currency trading. This reality can often prove confusing for the novice, who doesn’t know where to begin.

As stated, in order to successfully trade forex, analysts use a myriad of techniques to identify the supply and demand of assets traded on the forex market. However, foremost among them are patterns and trends, and these are a good place to start. Trends are the general direction of price movements over a period of time, and patterns are data sets intended to help identify future movements. In order to trade forex profitably, it’s imperative that you understand them. Read on to find out more…

Trends

Trends are really quite simple to comprehend. Three basic types exist: up, down and sideways. These labels describe the direction of price movement.

Trends can vary in longevity, from short to medium to long-term. If investors can identify them, they can trade in line with them in order to turn a profit. Should they be successful, this can provide them with an income source for as long as the trend continues.

These trends are identified in a number of ways, most commonly through trend lines and channels. These use boundaries for price fluctuations. If values should either fall below or exceed these, they help investors to spot the beginning of a potential trend. Thus, if an asset begins to hit a series of higher highs and lows than expected, this is seen to indicate an upward trend. Downward trends, on the other hand, are marked by lower highs and lows.

As a general rule, investors who use trends adopt a position that profits them for as long as it continues. This is the lowest risk response to spotting trends, and ensures that the investment will be successful for as long as the trend endures. Some more experienced investors, however, may do the opposite, taking a position that will profit them only if the trend reverses. This can deliver much greater profits, but it also poses a much greater risk of loss.

Patterns

Forex patterns are essentially what they say on the tin: patterns. They’re data series that repeat in a similar way, helping to identify recurring market behaviours that could profit investors. They complement trend strategies as identified above, as they help to spot upward and downward trends, and can provide a clue as to when new trends will start based on historical data.

Technical analysts extrapolate these patterns from charts and graphs, identifying data that suggests common closing prices, highs and lows, for example. Where these recur over a prolonged period of time, chartists may use them to provide a clue as to future movements. This essentially means that they’re being used to identify trends, but patterns are often favoured over raw trends because they expand on this by providing information on the possibility of their recurrence.

If you’re thinking of embarking on a career in forex trading, which method would you choose?