Knowing the market direction, or trend, for a FOREX currency pair is essential to trading success. You can identify trends by using simple moving averages (SMAs). An SMA is the average of prices over a specific time period; the oldest price is removed from the average as the newest one is added. By exploiting the variable time-period charting capabilities of most online FOREX analysis platforms, you can construct SMA trend lines that will reveal market direction.
Determine the long-term trend. Plot a 13-week SMA line onto a weekly price chart for your currency pair. If current prices are above the SMA line, you are in a long-term uptrend. The reverse is true if current prices are below the SMA line.
Determine the intermediate-term trend. Plot a 13-period SMA onto a four-hour price chart and compare the result with the one obtained for the long-term trend. If they agree and if the trend line on the four-hour chart makes an angle of 20 degrees or more with respect to current price line, then the intermediate trend direction is confirmed and may hold long enough for you to place a profitable trade.
Determine the short-term trend. Plot an SMA of the last 55 hourly mean prices--the average of each hour’s high and low prices--for your currency pair onto a one-hour price chart. When the one-hour SMA moves into agreement with your other two SMAs, you have identified the possible start of a short-term trend and a trading opportunity.
