Three stages of the Forex trend formation

Opinions about the formed trends of price movement vary among traders. Someone loves these moments because can build trading strategies on them, others fear, waiting for a lull and stagnation. But one thing is for sure, the Forex trend can result in huge losses if not recognize it in time. And it can also bring in excess of profit if trader will be able to play on time, determined correctly the future trend direction on the Forex market.

If we consider the concept of a trend in a narrow sense, it is a deliberate price movement. Any micro reversal or consolidation are considered as the end of the current price movement. Prices microvibrations we also will not consider. So, if formulated differently trend is an orderly price movement from point A to point B, where the last point is the moment of the end or reversal of trend.

Three stages of the Forex trend formation

How to determine trend on Forex

To do this you need to understand that the price movement always consists of three main stages.

The first stage – the imbalance

This is a key signal, the main factor. Bell, on which competently and efficiently react experienced traders. And inexperienced – at this point slowly begin to lose money. And just from their reaction depends on how much they will lose. The imbalance is reflected in the superiority of the buy orders number over sell orders. Or vice versa. As soon as sell orders number, for example, will be much higher than the buy orders, the offer will be immediately accepted. The demand will disappear. Thus will forms price falling, and the more disturbed the balance, the faster moves the price.

The second stage – orders closing

The direction of the Forex trend will begin to destroy orders, which are opposite. That is, in a downtrend, sell positions will begin to close by triggering the stop loss orders. Experienced traders will be able not to wait for such development of events and close all positions manually. Accordingly, others will be able to squeeze a closure in a break-even point as a maximum, and the least experienced traders will immediately start losing money if a stop loss is too low. Thus, gradually will happen mass closing of all orders that are against the trend.

The third stage – acceptance

At this moment all traders aware the Forex trend direction and its actual existence, and begin to build their trade on the basis of new knowledge. It all depends on the trading system – someone willing to work with the trend, someone freezes orders while waiting for the best times. Exactly in this moment may occur the reverse reaction because the balance tends to recover. Therefore, trade with the trend also has its pitfalls. A sharp turn, which is consists of three phases, which described above, can again hurt to hit the trader`s pocket, who are not ready for this.

To trade successfully on the financial markets, you should always be prepared for sudden behaviors, spikes, spontaneously emerging trends and sharp reversals. The trader who does not pick up impuls, does not friendly with stop orders – is doomed to losses. Only those who are prepared for any eventuality can earn on this market.

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