Keep It Simple and Trade With the Trend
As a trader, you have probably heard the old adage that it is best to "trade with the trend." The trend, say all the pundits, is your friend. This is sage advice as long as you know and can accept that the trend can end. And then the trend is not your friend.
So how can we determine the direction of the trend? We believe in the KISS rule, which says, "keep it simple, stupid!" Here is a method of determining the trend, and a simple method of anticipating the end of the trend.
Before we get started, we want to mention the importance of time frames in determining the trend. Usually, when we are analyzing long-term investments, the long-term time frame dominates the shorter time frames. However, for intraday purposes, the shorter time frame could be of greater value. Trades can be divided into three classes of trading styles or segments: the intra-day, the swing, and the position trade. (See also: Trading Multiple Time Frames in FX.)
Large commercial traders, such as those companies setting up production in a foreign country, might be interested in the fate of the currency over a long period of such as months or years. But for speculators, a weekly chart can be accepted as the "long-term."
Averages Moving in Pairs
With a weekly chart as the initial reference, we can then go about determining the long-term trend for a speculative trader. To do this we will resort to two very useful tools that will help us determine the trend. These two tools are the simple moving average and the exponential moving average.