There are a lot of traders who look at trends on the forex charts. When you consider the trends on the forex charts you should look at using moving averages and the MACD. These two technical indicators can help with your technical trends trading. It is important that you consider how these indicators help and what you need to do when you use them.
The Identification of the Trend on the Forex Charts
A lot of the trading on the forex market takes place in the short-term. This means that you should be looking at the short-term trends. However, before you can determine the short-term trading points you have to consider what the overall trend of the market is. These overall trends or major trends give you a roadmap that you can use for your shorter trades.
When you know that the major trend is bullish you can trade in the short-term accordingly. This means that many of your short-term trades are going to be on a bullish trend because this is the overall direction of the market. To determine the major trend you should look at the use of the moving average and the MACD.
Focussing on the Long Term
Before you can trade on the short-term you need to focus on the long-term. To do this you have to use the monthly forex charts for the currency pair you want to trade. The currency pair that you use will relate to your short-term trading strategy and the time of day that you are trading. It is best that you use the monthly candlestick or bar chart as these charts work best with the two indicators you are looking at.
Once you have to monthly forex charts you should apply the first indicator. The first indicator is the exponential moving average. You should apply the 12-month moving average to the chart to get the major trend movements. There are a number of different benefits and drawbacks that come with the use of moving averages. The main benefit is that they offer you an easy to use visual of the trend. The main drawback is that they offer a number of whipsaw signals that can cause problems with your trading.
Adding the MACD
To refine the identification of the major trend you are going to use your second technical indicator. The combination of these two indicators not only confirms the major trend, but tells you when a good time to look at trading is. When the two indicators do not agree then you should avoid trading on the trend.
The parameter values that you are going to use for the MACD should be long-term. The common defaults for this indicator are 12, 2 and 9. You should look at using 18, 37 and 9. There are no correct values for the MACD and you can test a number of different combinations on a demo account before you trade live with these indicators. Once you have set up these parameters you should apply the indicators to the monthly charts.
When you look at the information provided by both of the indicators you will be able to determine if the major trend is bullish or bearish.