Approximately 80% of all currency transactions last a period of seven days or less, while more than 40% last fewer than two days. Given the extremely short lifespan of the typical trade, technical indicators heavily influence entry, exit, and order placement decisions.
Further, approximately 85% of all daily forex transactions involve “the majors,” which include the US dollar, yen, euro, British pound, Swiss franc, Canadian dollar, and Australian dollar. The depth and concentration of the market in just seven currencies provide a statistically significant dataset for trend analysis. Technical indicators work the same way on the currency markets as they do in the equity markets.
Identifying the trend In its most basic sense, a trend is simply a prolonged market movement in one general direction, either up or down. From a trader`s perspective, though, that simple definition is so broad as to be almost meaningless. For our purposes, a trend should be defined as a predictable price response at levels of support/resistance that change over time. For example, in an uptrend the defining feature is that prices rebound when they near support levels, ultimately establishing new highs. In a downtrend, the opposite is true: Price increases will reverse as they near resistance levels. The trendline analysis is often underestimated because it is perceived as overly subjective and retrospective in nature. While there`s some truth in those criticisms, they overlook the reality that trend lines help focus attention on the underlying price pattern, filtering out the noise of the market. For this reason, trend line analysis should be the first step in determining the existence of a trend. If trend line analysis does not reveal a discernible trend, there probably isn’t one