In Forex, as in all economic markets, the name of the game is supply and demand. The stronger a currency gets, the larger the global demand for the currency becomes. Several elements impact currency supply, such as inflation, money printing by the central bank and more. Elements impacting demand can include positive growth signals from the national economy, or investors creating demand for a currency by wishing to invest in the national market.

Market Sentiment – the name for the market’s general “state of mind”. It influences supply and demand for different currencies. Market sentiment expresses the feelings and beliefs of the majority of traders about the market. There might be times when it will be opposite to your own analysis or expectations, but you must understand that it reflects the majority point of view. You can’t tell yourself: “everyone is wrong and I am right”. If the majority chooses a certain direction, it is the relevant direction for now. Say a price goes up, it means that most traders feel that way right now and therefore the demand for this pair goes up.

Lines & Trends

Trends are the essence of Forex trading. They are the basis for all of our executions. The trend is your friend as long as you learn to follow and identify them properly.

What is a trend? Charts move forward in three possible directions: Up (uptrend), Down (Downtrend), and Flat (Ranging/ Sideways trend). Each trend is characterized by highs (peaks) and lows (troughs). Trend is the prime factor affecting traders’ actions. In Forex jargon, an uptrend is called Bullish (when buying a pair we actually go bullish, or go long), and a downtrend is called Bearish (when selling a pair we go bearish or go short). Notice that in a bullish trend, each peak is lower than its sequential, and vice versa in a bearish trend.

A range-type trend is usually easy to identify, because a trader can visualize a rectangle-like shape which marks out the trend. It is a neutral trend, with the price unable to break out either upward or downward. During this period, it’s best to buy at the bottom and sell at the top. It’s a pretty straightforward strategy.

An example of a ranging trend:

The most important thing to know about a trend is its length, meaning its consistency.

Remember: a trend must contain at least two peaks or two lows in order to be considered as a trend. If it contains three or even more points, we can be quite certain that we are looking at a relatively solid trend.

Trend Lines – the essential technical tool for trend analysis. This is the first technical tool you will meet in the course. It is a very basic, simple and easy to operate tool (You can find it in the toolbox window above the chart, on your trading platform). It is also the most popular tool among Forex traders. By using a pencil drawing on the platform, you can draw a line that connects peaks to peaks and lows to lows along the trend. This trend line will now help you recognize a trend’s direction.

Important: Draw your lines correctly. In other words, do not match your line to the market, but rather the market to your line!

Remember: Many times it is possible to identify changes in the trend’s direction by following breaks in the trend lines. See the examples below:

The blue line in the middle represents the current price (In our case, 1.3662). You will notice that the last candlestick ends at this price.

Another example of trend lines in the Forex market:

Time Frames

For your convenience, we organized this subject in a table detailing the different time frames: