How do I identify a trend?

When a trend is taking place in a Forex pair, the price movements start to form peaks and valleys in the chart of that pair, which are easily identified.

During an upward trend, the price movements form a series of ascending peaks and valleys. (Higher Highs and Higher Lows)

Since a picture's worth a thousand words, lets look at the following chart:

This chart suggests that the trader should buy the currency pair (and close the trade by selling at profit after the rate rises).

Throughout a downward trend, the price movements form a series of descending peaks and valleys: (Lower Highs and Lower Lows)

This chart suggests that the trader should sell the currency pair (and close the trade by buying at profit after the rate declines)

It's important to note that during some trading days the trend is hard to spot, some trading days show no trend (the price movements form a Range), and of course you're bound to run into the occasional reversal, so this is not a perfectly accurate or 100% reliable indicator for trading.

Here is what a trading Range looks like:

It is easier to make money with a trend than with a trading range. While you can still make money in trading ranges, you have to be more nimble on your feet, and ready to jump in and out of the markets at all times. Needless to say, this makes the trader's life a lot tougher.

Trading ranges can be really messy and unpredictable, which is why you should always look for trading trends. It's a good idea to stay out all together during a range, and get back in only when the markets start to trend again.

As a general strategy, it is best to trade with the trend rather than against it, meaning that if the general trend of the market is headed up, you should be very cautious about taking any positions that rely on the trend going in the opposite direction.