It is very important for you as a currency trader to identify and understand a trend in forex because they tend to be vicious and one way. FX trends routinely wipe out speculators like us who commit the trading sin of trend fading.

FX trends start slowly and are usually the result of another action taking place in the global capital markets. A booming stock market like that happened in the Tokyo Stock Exchange some years back may lead to a massive forex trend in its wake as an example.

Similarly, a global recession may force investors to take refuge in save haven currencies like dollar in their flight towards safety. Likewise, decrease in interest rates will force carry traders to become risk averse.

So you will need to keep an eye on the global macro situation to look in which direction smart money is flowing. As most of the trends in forex markets are fundamentally driven by the flow of smart money.

The longer the trend is, the longer the correction and the consolidation will be. In simple words, fundamentally driven trends do not make sudden U-turns.

But mostly when the retail investors realize that a trend has developed, it is always too late for them. Professional traders, institutional investors and hedge fund have long been in the trade and are ready to dump their positions on the retail crowd.

As the saying goes, a Newsweek cover is a kiss of death for a trend. Trends are important for an individual investor to understand.

Always remember, trend is your friend. Trend trading is one of the popular trading strategies used by professional traders including hedge funds.

The best strategy is to take a position in the direction of the trend. You can easily identify a trend in currency markets using multiple time frame analysis involving moving averages.

Once you have identified the trend, use Fibonacci retracement levels to enter and exit the position. Always put stop losses. If you successfully make a trade, you can make many pips in a few days.