Forex Basic : The Trend (1) – The Long Trends as Main Barometer

The price movements in the markets are caused by supply and demand. However, the formation of these price movements is not coincidental. All these price movements have a distinctive direction. Charles Dow, the founder of modern technical analysis and one of the names of the Dow Jones index, introduced the concept of trend by firmly deciding that there is a significant aspect of market movements. The Dow Theory, which was compiled by Charles Dow, the founder of modern technical analysis, which was published in The Wall Street Journal between 1900-1902, forms the basis of the techniques used today. At first, the aim of the theory is to estimate the trend in the stock market and to invest in a loyal market in a way that is not to paddle against the current. Now. Dow’s theory is applied as well to other derivatives including currency trading.

As stated in the Dow theory, the types of trend are divided into three which is:

  1. Main Trend (known as Long-term trend)

One-year to several-year trends. At first, these trends are not attractive for the forex market, where short-term transactions are at the forefront. However, the main trends in the markets can be considered as the barometer of the economy. In currency graphs, long-term prosperity and crisis periods of countries are directly reflected in long-term trends.

The long-term rising trend under the chart is still evident. The increasing momentum of the graph in recent months can be interpreted as the trend can continue in the coming years. The main trend supports are also very important psychological support. Despite the fact that the main trend support was tested many times in the summer months of 2007 and even under the support of the mass psychology, the trend continued.

Long-term resistance is more important than long-term support in the technical analysis of long-term downtrend trends. Because the resistance to break and strengthening means the end of the trend. The USD / CHF pair, which moved in the downtrend from the spring of 2001 to the spring of 2005, broke the long-term decline trend resistance and entered the rising trend in the short-term. Long-term decline trends are generally shorter than rising trends. The reason for this is that mass psychology causes more hysterical behaviors in the ascents. Individuals are even more enthusiastic about earning more, but because of their fears rather than willingness to lose, their trends are shorter.

The tightness of supply and demand can lead to the direction gap and hence the horizontal trend movements. EUR / CHF maintained its long-term horizontal trend between 2001 and 2003. Horizontal trends can be compared to fault lines. The rigorous supply and demand, such as the fault lines that are broken as a result of the explosion of tight energy, find its direction after a certain point causes hard movements. Therefore, the movements that occur when the support and resistance of the horizontal trend are broken, are quite stiff and are often the precursor of a new trend.

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