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Identifying Trends And Their Reversals |
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Technical analysts believe there are three types of price trends. The major or primary trend, which lasts about a year; the intermediate or secondary trend, which lasts a month or more and the minor trend, which lasts several days or weeks.
The trendline is used to identify price trends. As the market moves in a zigzag direction, the upper and bottom points of the zigzag pattern allow the trader to draw a line connecting the significant highs or lows. The highs are called peaks and the lows are troughs. A bullish trend line connects the troughs while a bearish trend line connects the peaks.
The trend is confirmed by volume. Volume is the total amount of currency traded within a period of time, usually one day. Large trading volume suggests that the currency is liquid and low volume means that traders should rethink their position in that currency.
Trends exist until they are broken. No matter how significant a trend may be, it is vulnerable to change. This change in the direction of the trend from up to down or from down to up is called a trend reversal. Trend reversals usually follow a pattern. First, the market hits a new high. Then prices take a dip below where they have been trending and the market hits an intermediate low. This is followed by a price rally that does not go above the previous high. The last step in this pattern occurs when prices fall past the previous low.
After a large rise or fall, prices move sideways and they consolidate. Usually, after a consolidation, the current trend stops and the previous one resumes. That means that if an uptrend with its higher highs and higher lows were to reverse into a downtrend, the pattern would change into lower highs and lower lows.
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| Symbol |
Rate |
| GBP:CHF |
1.747703 |
| GBP:JPY |
155.484239 |
| GBP:USD |
1.638403 |
| NZD:USD |
0.627050 |
| EUR:CAD |
1.545998 |
| EUR:CHF |
1.516857 |
| EUR:GBP |
0.867915 |
| EUR:JPY |
134.947096 |
| EUR:USD |
1.421994 |
| AUD:JPY |
76.394373 |
| AUD:USD |
0.805000 |
| USD:CAD |
1.087204 |
| USD:CHF |
1.066711 |
| USD:JPY |
94.899879 |
| USD:SEK |
7.613010 |
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Disclimer: This website is for informational purposes only and is not intended to provide
specific commercial, financial, investment, accounting, tax, or legal advice.
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© ForexCenter.com, 2005, All Rights Reserved
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