Trail the Forex Trend
A decision you make in the forex can either earn you profits or make you suffer losses. Bring those losses down to a minimum and realize those profits by following price trends. Learn how to follow a trend or pattern by using a basic method every trader should know - the simple moving average.
Currency prices have a pattern to their movement - they can rise, fall or go sideways. Those prices move progressively over time. You can discover that trend just by doing elementary math.
The simple moving average formula is easy. First, choose the price you're going to use - the high, the low or the close. Then select an average in days that's suited to your needs. This can be short-term (five to ten days), intermediate (50 days), or long-term (200 days). Just add up the series of prices over the term and divide the sum by the number of days in the term. The quotient will be the first moving average in the pattern. To get the new average, just follow the same formula but drop the last price from the series and add the new price to get the new sum for the term.
For instance, you want to see a 5-day moving average for the close price of the Japanese yen against the US dollar. The first five days closed at 125.06, 124.55, 124.31, 124.70, and 125.07. The first average is the sum of these prices divided by five, and the quotient is 124.74.
The next day, it closed at 125.10. The new average will then be the sum of 124.55, 124.31, 124.70, 125.07, and 125.10 divided by five. The new average is 124.75. See that the oldest price was dropped and the new price was added to get the new average.
By now you will notice the averages changing and see the trend. Over time, you'll see that the averages will either go up, down or evenly when plotted on a chart. In other words, you will notice these prices trending higher, lower or smoothly across the board. This is a useful indicator in making your investment decisions.
Use the trends when you trade in the forex as a signal to buy, sell, or stay. Simply put, when the price is above the moving average it is "trending up". It's good to buy at this point because the forecast is good that it's going to continue up over time. Then sell at the point when the price is high and before it starts to go down - thus making you a profit. When the price is moving below average, it's better to sell if you don't foresee the prices bouncing back so that you can cut your losses.
Currency price movements can be predicted because they are quantifiable and they move over time. Analyzing trends in the forex is a useful tool for any investor or trader. The easiest method of which is the simple moving average. Follow the trends and make educated decisions with your money. In time, you will see the return on your investments trending up as well.