The traders in the Forex market will tell you that they take trades based on the dominant trend. The valuation of currency stays the maximum time in a particular direction and this happens because the macroeconomic condition of the country does not change suddenly.
This is something that is very useful for those trading in the Forex market. Understanding this lets one establish a position in the direction of the trend. When done the position can benefit because of the momentum that is already prevalent in that direction. Understanding the trend and trading with the trend lets you turn the odds in your favor and generate trading success for along term.
The trend in the Forex market is formed when there is a series of highs or when there are a series of lows. This needs to occur in succession.
When the market is in an uptrend then there needs to be at least a minimum of three consecutive high for the uptrend to get confirmed. Along with the uptrend highs, there should also be three high lows formed.
To confirm a downtrend there should be three lower highs and three lower lows. Without this, the trend is not confirmed and it could be just a sideways trend.
Trading the dominant trend
When there are three consecutive highs as well as three consecutive lows then this establishes an uptrend. This is confirmation to take long trades.
Similarly, when there are three consecutive lower highs and three consecutive lower lows then this confirms a downtrend and the trader can take a short position in the market.
It is important that you understand the structure to take a trade. If you see three consecutive highs and lows then this confirms the uptrend. However, if you see more than three consecutive highs and lows then this makes the uptrend stronger. To be able to increase your profits it is best to trade with the trend and not countertrend.
Once you spot a series of highs and a series of lows then you will need trendlines to determine the activeness of the trend.
Most of the Forex trading platforms you plot the trend lines. The trader needs to connect the series of highs and the series of lows with a trendline. The trendline lets you know if the trend is still stronger about to reverse.
This Site gives more information on plotting trend lines.