Benefits of Market Trends in Trading
For most market traders, it is assumed that a company’s profit strength, public image, policies, and corporate strategies will be what attracts an investor to buy a stock. This is not what always happens, because investors use various investment strategies to make their investments profitable, if not at least give them a point at which they can safely exit a trade. Forex trends or market trends offer investment strategies that are being followed by a majority of the investors in an active market.
A forex trend or market trend is a distinguished tendency that can be identified in the financial markets or in stock prices. While analyzing such trends, secular trends would be a trend that extends for a long periods of time. Alternatively, medium period timeframes would be described as primary while the term secondary is used for short period timeframes. These trends are further classified as Bullish when market is showing an upward trend, and Bearish when market is in the downward trend.
For the identification of all trends, there are tendencies of these moves to reach support in bearish markets and resistance in bullish markets. To accomplish this, technical analysis tools are used. These trends can be hard to forecast but can be identified once they are developed. Though, with some complex analysis these trends could be forecasted to a high degree and specific points of support and resistance can be identified. Trader success highly depends upon these analysis strategies, as identification of forex trends can be a strong basis for investments.
Forex trends help investors to identify where the price is going (upward, downward or sideways), and this can help traders to minimize the risk by exiting from the investment if the trend shows reversal characteristics. This is also one of the basic strategies used in hedge investments. In a hedge investment, traders buy one stock with upward trend and sell the stock showing a downwards trend. Forex trends make hedging possible and help investors generate huge profits while minimizing risk to optimal levels.
Supply and Demand
Never forget that these trends are the result of supply and demand of a particular stock. Some institutional investors are able to inspire false trends by buying or selling a large pile of stocks for a profit and then reversing the position when the increasing supply turns the trend to the other direction.
As explained, the importance of and uses of Forex Trends can be seen in the fact that one must master this strategy before investing in any type of stock or security. Its use will enable newer traders to minimize risk and to learn new lessons in analyzing securities and stocks.