Do you have your definition of a trend memorized? You’ll need it as we look at some Forex chart trends.
Below are 4 charts. Two of the below charts are demonstrating a trend pattern. Two of them are actually showing us range behavior. Do you know which ones do not belong to the “trend” family? Chart trends are tricky.
This is GBP/AUD in an up-trending pattern on the 15-minute time-frame chart.
It’s a trend because the price has been above both moving averages for more than 30 bars of time. The nature of a trend is to make progress in one direction. When it stops doing that, I get ready for price to pull all the way back to the 50 sma.
After establishing this recent high, it has tried and failed to make a higher high for more than 20 bars, so I expect to see this trend fade and drop back towards the 50 sma.
This EUR/USD 15-minute chart is NOT demonstrating an up-trend.
It’s a trickster because it’s showing us higher highs that are very impressive! But, because the price was on the opposite side of both moving averages only 14 bars earlier, it doesn’t fool me. My expectation is that it will swing back to the other side of the MAs. What’s more, I expect this to happen within about 15 bars of time!
That’s really useful information don’t you think?
This is USD/JPY and it is showing a down-trending pattern!
Notice how price came back up to the first moving average, but it stopped there. Since it didn’t cross both, the expectation was that it would drop and go looking for that lower low… like a trend!
This is EUR/CAD, and it is NOT a trend pattern.
You got this, right?
Price dipped below both moving averages in less than 30 bars, so the expectation is that the market will swing back to the other side of both MAs rather than go for a higher high.
Why does it matter if it’s a trend pattern or not?
The cool thing about identifying the chart pattern in Forex – is that you’re identifying an expectation about market behavior, and identifying an expectation about what the market will do next. When you can anticipate price action, you can trade.