Why Trend Form? Anatomy of a Forex Trend!

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Just as stock prices can be considered as representing the net worth of a company, in the same way, we can consider a currency to represent one country’s economy. When we trade trends in the forex market, we are in fact trading the entire economies of countries.

We all know this that when a country’s economy is strong or weak, it often remains that way for many years. Now, you can’t make an economy strong by making a few accounting gimmicks or replacing it’s leader or what you call the president or the prime minister. Weak economies can take years to recover.

These economic strengths and weaknesses run in cycles that can last for many years. One of the economic indicators that are used to measure these economic fluctuations is the GDP ( Gross Domestic Product). Now, this economic strength and weaknesses get reflected in the currency of that country.

When we trade currencies, we trade them in pairs against one another. Often situations arise in which one currency in the pair is much stronger than the other resulting in a strong uptrend that can last from months to years. So the best trend trading strategy is to find a currency pair with one currency strong and the other weak and trade it. As long as the underlying fundamentals don’t change, this trend will continue and can continue for a long time.

For example, in 2005 US economy showed a strong recovery. The US growth was in fact so strong that FED had to embark upon a series of interest rate increases in order to cool down the economy from overheating. This strong growth started a number of uptrends in major currency pairs like the USDJPY, USDEUR and USDGBP that lasted for many months. Savvy trend traders made a lot of money by trading these trends.

Source by Ahmad A Hassam

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.