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FX/CFD trend judgment

Trend judgment is a trading skill that all traders need to master. Understanding the market trend will help you develop a profitable trading strategy.

There are three market conditions:

  • Uptrend
  • Downtrend
  • No trend/range

 

There are two main methods available to judge the market’s trend:

  • Sequence of highs and lows
  • Moving average

 

Sequence of highs and lows

Uptrend

An uptrend is a sequence of higher highs and higher lows.

Uptrend

You can connect higher lows to form a trend line in an uptrend.

Uptrend line

Downtrend

A downtrend is a sequence of lower highs and lower lows.

In a downtrend, you connect lower highs.

Downtrend line

Range market

A range market is where there is no sequence of highs or lows.

Range market

Moving average

A moving average can indicate the market trend. In an uptrend, the moving average will be pointing higher, lower in a downtrend, and sideways when there is no trend.

Uptrend

Uptrend MA

Downtrend

Downtrend MA

Range

Range moving average

The steeper the moving average line, the stronger the current trend.

Strong up trend

Strong uptrend

Weak uptrend

Weak uptrend

To determine the short-term trend, use a short-period moving average of 5 or 10 bars.

To determine the long-term trend, use a long-period moving average of 30 to 200 bars.