Technical or trend analysis presupposes that past market movement gives traders an indication of future market movement. This seems like basic stuff but it is the most useful and popular forex analysis tool among forex traders today. Spotting when a pair is trending and when it isn't is the key to consistent profit in the forex market. Once you identify a trend, you can predict what direction the rate of a currency pair will take and you can exploit this knowledge to your advantage by opening a position in that direction. If the identified trend is an uptrend, meaning that the currency pair’s price rate is increasing, you can buy the pair low in order to sell it high later. If the identified trend is a downtrend, meaning that the currency pair’s price rate is decreasing, you can sell the pair high in order to sell it high later.
The best way to spot a trend is by analyzing the distinct patterns that the price rate forms on a currency pair’s rate chart. When a forex pair finds itself in a trend, the graph of the price rate starts to form peaks and valleys that are easily visually identifiable.
If the pair is an uptrend, the graph will start to show ascending peaks and valleys. This means that each successive peak is higher than the previous peak on the chart, and each successive valley is higher than the previous valley on the chart. In forex terminology these are called higher highs and higher lows.
If the pair is a downtrend, the graph will start to show descending peaks and valleys. This means that each successive peak is lower than the previous peak on the chart, and each successive valley is lower than the previous valley on the chart. In forex terminology these are called lower highs and lower lows.
It’s important to remember that currency pairs aren’t always in one trend or the other. You may even see some trading days when you can’t spot a clear trend among any of the currency pairs at your disposal. Having said that, even when you have spotted a robust trend, there’s always a chance of a reversal, i.e. of an uptrend turning suddenly into a down trend or vice versa. As useful as it is, technical analysis is not a 100% accurate indicator. If it was, forex trading just might lose a bit of its excitement.
There exists also a certain market condition called a trading range. In a trading range, the currency pair’s price rate oscillates between irregular high and lows without forming a clear trend pattern. Trading ranges are riskier to trade in since you have no way of predicting the rate’s next move. It’s not impossible to profit from a trading range, but it’s usually good for very short term positions and the risk may not be worth it.
As a general strategy, although reversals happen all the time, once you spot a trend it’s always best to trade with the trend rather than against it. Logically it makes no sense to trade against the pattern you just spotted since the whole idea of spotting a trend is to spot a tendency that will keep reproducing itself in the near future.

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