Only three things happen in the technical analysis perspective when two currency pair are traded regardless whether they’re majors crosses or exotic pairs. They move up, down or sideways. In moving up, we identify them as uptrends, moving down, they’re called downtrends and in moving sideways we call them basing movements.

But remember! To properly perform a reliable forex technical analysis, you need to be able to identify the trends.

Uptrends – Currency Pair

If a currency pair is in an uptrend, it’s making higher highs and higher lows.  This means that in the cycle of moving between support and resistance, each time it moves toward a support, it can reach a higher point than the previous support.  And each time it looks for resistance, it is encountered at a higher point than the previous resistance price.

The effect of this is to move the currency pair at a positive angle towards the y-axis at the right of the chart.

Downtrends – Currency Pair

If a currency pair is in a downtrend, it’s making lower lows and lower highs.  So in its search for support, the currency pair is finding it at a lower level then the previous support.  And in terms of resistance, this is also encountered at a lower point than the previous resistance price.

The effect of this is to move the currency pair at a negative angle towards the y-axis at the right of the chart.

Consolidation Of Currency Pair

Often when a currency pair breaks out of a trend, it will trade within a very consistent range.  This is a sign that the market is trying to determine the next cycle for the pair.  From a forex technical analysis perspective, it’s still possible to trade this pair because the price will be moving within a fairly consistent range.  The highs will generally align with the previous high and the lows will align with the previous low.

But when trading a currency pair in this stage it is important to keep an eye on your forex technical analysis.  A pair can very quickly breakdown or breakthrough from here.  So if your stops and exits aren’t set up, then you could find yourself in a tough position.

The price movement in all cases is fairly consistent and, by drawing trendlines, can be predicted.  This should give a trader some confidence when entering, exiting or staying with a trade.  A currency pair is likely to stay within its channel until there is a significant change in the price inputs.  For instance an unexpected recession or recovery would certainly do it.  Or even an unexpected positive GDP outlook-not to mention a tiny political scandal or two.

By recognizing these trends and drawing trendlines,Forex technical analysis will help you determine the trend of your currency pair eventually you’ll be in a better position to manage the trade.